Corporate Governance and Access to Finance - ESBG

The table captures the essence of savings banks, that pursue at the sametime returns to their balance sheet and returns to the society. They contributeto the improvement of living conditions, regional development andenhanced competition in the banking marketplace.Two of the abovementioned goals are crucial for the purpose of thisstudy: promoting access to financial services and profit maximization.Empirical findings show that the broadening of their outreach by savingsbanks does not have a cost in terms of lower profitability (see WSBIPerspectives 52, 2006, for a review). The lack of systematic variation inprofitability as outreach increases is a key element to understand thatsavings banks or WSBI members more generally can achieve goals formultiple stakeholders, including shareholders when they exist, depositors,the public sector or members of a mutual society in its case.The traditional approachAccording to traditional studies, the main recommendations forCorporate Governance in firms in general apply also to bankinginstitutions, as documented by La Porta et al (2002), namely that betterresults are obtained in countries where there are mechanisms to ensureprotection of minority shareholders. Caprio et al (2007), however, arguethat the monitoring by small shareholders could be difficult in the caseof banks, even under strong shareholder protection regimes, due tothe opaque nature of their activity, the lack of information on specificborrowers and their inherent liquidity vulnerability. Their findings, though,do not differ from those of non banking firms: controlling owners withlarge cash-flow rights and strong shareholder protection make bankingfirms more valuable. These empirical findings are resulting from a datasetwith the 10 largest publicly listed banks across 44 countries. It is notpossible to derive direct implications for banking firms with no explicitowners, like mutual societies, or with a complex structure of cash flowrights, as many savings banks. For a review of Corporate Governancepractices in the case of mutual societies see Llewellyn (2007).Government intervention promoting high disclosure standards andmarket discipline is one of the main tools to combat the opacity offinancial institutions. Bank transparency would enhance market disciplineand counteract uncertainty. Transparency would also reduce moralhazard, exacerbated by the government guarantees on bank liabilities, asthe current crisis has shown.101