Strong Boards, General Manager Power And Bank Risk-taking

The commercial bank board is the highest risk management and decision-making bodies to ensure that commercial banks effectively identify, measure, monitor and control a variety of risks undertaken by various professional work, meanwhile the board is responsible for approving risk management strategies, policies and procedures and determining the overall risk level the commercial banks can undertake. Therefore, the board is ultimately responsible for bank's risk management. Once the bank's risk-taking is out of control, the board can not shirk responsibility. According to statistics, from 1990-2006 there are 459 U.S. banks have collapsed, 90% of which was due to directors'passive action or wrong decision-making. Among them, directors of 336 deposit and loan institutions deselected of duty and neglected of caution. In August 2007, the sub prime mortgage crisis took place in the U.S. which was caused by the financial crisis was considered of the most severe recession since the Great Depression from 1929-1932, This was largely due to financial institutions'irresponsible risk-taking, meanwhile board's wrong decision-making was also an important reason. At the same time, for commercial banks, risk means benefits and reasonable risk-taking is also one of the prerequisites bringing stable performance, Based on this, this paper study the board features'impact on bank risk-taking.Using a sample of nine commercial banks which have listed in Shanghai, and Shenzhen A-share market (Merchants Bank, Shanghai Pudong Development Bank, China Minsheng Bank, Shenzhen Development Bank, Hua Xia Bank , Bank of China, Communications Bank of China , Construction Bank of China and c Industrial and Commercial Bank of China) over 2006-2008, this paper examines the relevance of bank board structure on bank risk-taking , this study finds that strong bank boards (boards reflecting more of bank shareholders interest) particularly small and less restrictive boards positively affect bank risk-taking. In contrast, CEO power (CEO's ability to control board decision) negatively affects bank risk-taking. However, the model's significance is not high enough, some variable is not significant, which may be attributed to China's commercial banks'inadequate Board of Directors governance mechanisms, as a result, Board Governance characteristics can not be fully reflected. Finally, to the problems showed in China commercial banks'Board of Directors , this paper presents a comprehensive ideas and countermeasures.