The Corporate Governance Of Commercial Banks

The rethinking of the Asian financial crisis in 1997 has put the relationship of the fragility of the banking sector and the corporate governance of commercial banks into limelight. It has been found that the substantial differences between commercial banks and other companies have challenged the general theory of corporate governance, which has made it necessary to carry out a comprehensive study on the corporate governance of commercial banks. Furthermore, given the important role commercial banks play in the economy and the great negative externality the banking crisis exerts, the importance of the study on the corporate governance of commercial banks is out of question. Therefore, probing on the special mechanism of commercial banks' corporate governance, and seeking the ideal combination of the special features of commercial banks and the general theory of corporate governance, have been one of the focuses of the academic and the practice.Starting from the special features of commercial banks, this dissertation forms a general framework for the theory of commercial banks' corporate governance, then transfers it into mathematical models, and finally does empirical tests on the major propositions. The dissertation is composed of six chapters.The first chapter is the introduction. First of all, the background and the value of the study on commercial banks' corporate governance are presented. Next, the terms to be used in the following chapters are defined. Then, the logic, the structure and the major innovations of this dissertation are outlined.The second chapter is the article review. The literature in the field of commercial banks' corporate governance are categorized into three topics. They are the aim of commercial banks' corporate governance, the mechanisms to fulfill the aim, and the guidelines and best practices of commercial banks' corporate governance. As for the mechanisms of commercial banks' corporate governance, it is divided into three parts, i.e. the theoretical framework, the mathematical model, and the empirical test.The third chapter presents a theoretical framework for the corporate governance of commercial banks, given the special features of commercial banks. First, based on the definitive characteristics of commercial banks, i.e. taking deposits and extending loans, the special features of commercial banks are summed up. Second, the special governance environment of commercial banks is derived from these special features. Third, based on the special governance environment, the aim of commercial banks' corporate governance can be set in two dimensions. One is to design a suitable deposit insurance system, with corresponding prudential supervision and regulation. The other is to pursue the maximum of bank's asset value, i.e. the maximum of Tobin's Q of bank's asset, through the design of other corporate governance mechanisms, given the deposit insurance system being constant. Fourth, under the aim of commercial banks' corporate governance and the special environment, four instructions on commercial banks' corporate governance structure are concluded, i.e. raising the quality of information disclosure to fully take advantage of reputation mechanism, perfecting the deposit insurance system with prudential supervision and regulation, concerning both shareholder protection and debt holder protection, and setting proper rules for government participation into banking governance. Fifth, based on these four instructions, suggestions on the design of corporate governance mechanisms of commercial banks are given.With the mode of Assumption-Model-Proposition, the fourth chapter builds mathematical models for the theoretical framework in the third chapter. The models describe the moral hazard of bank insiders. With the basic concept that bank insiders would trade off for the more favorable strategy for themselves, the models demonstrate the impacts of the special environment on the corporate governance of commercial banks and the effects of various governance mechanisms, with propositions and corollaries.The fifth chapter conducts empirical tests for the conclusions derived in the fourth chapter. First, testable predictions are derived from the propositions and corollaries in the former chapter. Second, the construction of the global sample, the definition of corresponding variables, the sources of data and the method of empirical tests are introduced. Finally, the results are reported for the combination of deposit insurance system and prudential regulation, the impacts of various governance mechanisms on banks' asset value, and the governance issues of state-owned banks. The results of the empirical tests support most of the predictions.The last chapter is the conclusion of this dissertation. On the one hand, it sums up the major results and conclusions of this dissertation. On the other, it points out the insufficiency of this study, which needs discussion in the further study.