Corporate Governance of SIFI Risk-Taking : An International Research Agenda

Excessive risk-taking by systemically important financial firms was one of the leading causes of the financial crisis. Research suggests these firms may be no safer today than they were pre-crisis, and they may even be increasing their risk-taking. Risk-taking is inherently a corporate governance choice. Why would rational managers want their firms to engage in excessive, rather than appropriate, risk-taking? The answers to that question might lie in corporate governance law, which fails to adequately address a new reality: risk-taking by systemically important firms can sometimes have systemically harmful consequences. This book chapter examines how governance alternatives to shareholder primacy might help to address that reality. It also considers how that regulation should be evaluated as a policy matter. The chapter does not purport to provide definitive and complete answers. Instead, it focuses on trying to offer a framework, as part of an international research agenda, for analyzing and thinking about the answers