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Conference Paper
Bankers on boards: monitoring, financing, and lender liability
This paper investigates what factors determine whether a commercial banker joins the board of a non-financial firm and how a banker on the board affects the firm. We consider the trade off between the benefits of bank monitoring to the firm and the costs to the bank of becoming actively involved in firm management. On the one hand, smaller and more volatile firms with few tangible assets might benefit most from close bank ties. On the other, the U.S. legal doctrines "equitable subordination" and "lender liability" could generate high costs for banks which have a representative on the ...
Journal Article
From the classroom to the boardroom
Journal Article
Corporate governance : where do Tenth District community banks stand?
Troubles at publicly traded companies have led to the passage of recently enacted laws that add more rigor and formality to the corporate governance process. Most of these reform proposals and new laws focus on protecting investors in publicly traded firms. Relatively few Tenth District community banks, however, are publicly traded or are subject to new laws that would require them to change their corporate governance practices. Indeed, many are small in asset size, family-owned, closely held, and owner-managed. Given these characteristics, the governance process at community banks tends to ...
Report
Regulation, subordinated debt, and incentive features of CEO compensation in the banking industry
We study CEO compensation in the banking industry by considering banks? unique claim structure in the presence of two types of agency problems: the standard managerial agency problem and the risk-shifting problem between shareholders and debtholders. We empirically test two hypotheses derived from this framework: that the pay-for-performance sensitivity of bank CEO compensation (1) decreases with the total leverage ratio and (2) increases with the intensity of monitoring provided by regulators and nondepository (subordinated) debtholders. We construct an index of the intensity of outsider ...
Journal Article
Walker leaves lasting legacy
Maggie Walker emerged as a visionary leader in the African-American community. A photo essay illustrates her life.
Report
Looking beyond the CEO: executive compensation at banks
The literature on executive compensation at banks has proceeded largely under the assumption that a single elasticity can adequately describe the sensitivity of executive pay to firm performance, but theories of performance based pay and tournament pay suggest that this assumption may be incorrect. We test the single-elasticity assumption by comparing the components of compensation and the pay-performance relationship across banks with different characteristics and bank executives of different positions. We find that the structure of compensation varies significantly across firms, with firm ...
Report
Corporate performance, board structure, and their determinants in the banking industry
The subprime crisis highlights how little we know about the governance of banks. This paper addresses a long-standing gap in the literature by analyzing board governance using a sample of banking firm data that spans forty years. We examine the relationship between board structure (size and composition) and bank performance, as well as some determinants of board structure. We document that mergers and acquisitions activity influences bank board composition, and we provide new evidence that organizational structure is significantly related to bank board size. We argue that these factors may ...
Journal Article
FDIC Improvement Act and corporate governance of commercial banks
This paper examines provisions of the FDIC Improvement Act related to corporate governance of banks. These provisions focus on the composition and independence of the audit committee and on increased regulatory influence over executive compensation. The composition of audit committees for a sample of banking firms for 1990 is compared with those of industrial firms and with the provisions of FDICIA. The findings suggest only minor differences between banks and other firms; however, under FDICIA provisions, large changes in the composition of bank audit committees are likely. Provisions ...
Report
The effect of employee stock options on bank investment choice, borrowing, and capital
In this paper, we test the hypothesis that granting employee stock options motivates CEOs of banking firms to undertake riskier projects. We also investigate whether granting employee stock options reduces the bank's incentive to borrow while inducing a buildup of regulatory capital. Using a sample of 549 bank-years for publicly traded banks from 1992 to 2002, we find some evidence that the bank's equity volatility (total as well as residual) and asset volatility increase as CEO stock option holdings increase. In addition, it appears that granting employee stock options motivates banks to ...