Two-Tier Boards for the Governance of Banks

For financial intermediaries governance is particularly important due to their special role within the economy in the aggregation and transfer of financial resources. Recent measures aimed at supporting the economy and banks have attached particular importance to governance practices, as also suggested by the Financial Stability Forum, which includes corporate governance in the Compendium of 12 key principles for sound financial systems.Though coordinated measures at European level have often been suggested, corporate governance systems in Europe are actually quite different. There are three different possible board structures: the one-tier board system, typical of the UK, Spain and many other countries, the vertical two-tier system, typical of Germany and of the Netherlands in the case of large companies and countries in which companies may choose between different models, such as France and Italy.Many large financial groups in Europe, including a number of Italian large banks, have adopted the two-tier board governance structure. While some highlight its advantages, others emphasize the risks of the possible overlapping of functions and roles across different governance layers and of the plethoric multiplication of seats on the boards. This paper pursues a twofold objective of investigating i) the peculiarities of the corporate governance of financial intermediaries as concerns the size of the board and performance and ii) on the basis of international evidence, identifying elements which may be introduced to improve the legislative and self-regulatory framework with a particular focus on the implications of the adoption of the vertical two-tier model by banks and insurance companies