Corporate Governance and Access to Finance - ESBG

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This agency problem also holds for depositors in banking institutions,although with some specificities. Depositors invest their funds in bankinginstitutions where specialized managers take risky investment decisions.In a context of asymmetric information, in which depositors cannot assessthe best investment decisions, there is a potential for opportunisticbehavior of bank managers. To build trust on the system, a relativelyburdensome regulatory scheme is necessary for banking institutions,together with transparency on the policies and actions of managers.Hence the tight link between financial regulation and CorporateGovernance, to the extent that the former might be considered as anaspect of the latter.The case of depositors points to a crucial issue: in the case of banks,the necessary trust refers to a wider category of stakeholders, whichincludes, on top of shareholders, other agents like depositors, taxpayersand in fact all economic agents. Their trust is essential for the viabilityof banks and the soundness of banks is necessary for the efficientfunctioning of the economy. Indeed, the systemic nature of banks impliesthat the interest of all stakeholders (not only in a given institution butmore broadly in the financial system) needs to be taken into account.For non-financial companies a narrower notion of trust applies, accordingto which shareholders expect an adequate return for their investmentmanaged by the company’s administrators. This approach fits intothe Schleifer and Vishny (1997) definition of Corporate Governance:“the ways in which suppliers of finance to corporations assure themselvesof getting a return on their investment”.It is useful to distinguish between listed companies – to which the CorporateGovernance literature was initially addressed – and other types ofinstitutions, where the Corporate Governance principles need to differ toa certain extent from the standard prescriptions, since the main objectiveis not necessarily or exclusively to align the incentives of managers andshareholders. At the same time, the above-mentioned specificity offinancial institutions needs also to be taken into account. Both factorspoint to a broader emphasis of Corporate Governance on all stakeholders’interest, as opposed to the narrow focus of the traditional approach onshareholders only. This different approach is very relevant for WSBImembers, whose objectives go further than short-term profitability andwhose stakeholders are broader than in the typical banking institution.96
Even among the relatively narrow universe of listed companies, the diversityin terms of ownership structure, internal organization, board compositionsand shareholder protection has driven to different recommendations ofCorporate Governance practices; and their compliance levels differ too allover the world. Under this shareholder model the results are inconclusivein terms of dominance of one system over others. Although the codes ofbest practices and recommendations were initiated under the marketoriented UK system, many changes and adaptations have beenintroduced in different countries and regimes. Mullineux and Terberger(2006) reject the idea that the UK system should be seen as a modelfor banks in Germany.More recently, the interest for an alternative approach to CorporateGovernance proposes to take into account the welfare of all stakeholdersinvolved in the firm wealth creation, allowing them to participate in thedecision process. This trend moves the overall Corporate Governanceapproach closer to the (traditionally wider) focus of financial institutions,especially those with a “double objective”, like WSBI members.Tirole (2001) models the interests of the non-investing parties includingthe goal of “social interest”, what in practice matches many of theaspects of the Corporate Social Responsibility that most companiesnowadays declare to adopt.Corporate governance of banks and savings banksAs mentioned above, the Corporate Governance of banks needs toconsider the interest of other stakeholders, the most relevant of whichare depositors; hence the need for a relatively tight banking regulationand supervision, as well as bank guarantees (depositor protectionschemes) and other protection mechanisms, including the central bankfunction as a Lender of Last Resort to insure against liquidity runs.Banking supervisors and regulators are well aware of the specificitiesof the banking sector from the Corporate Governance point of view.The Basel Committee on Banking Supervision (BCBS), in the 2010document “Principles for enhancing Corporate Governance” 30 stressesthe relevance of the Corporate Governance practices for supervisorybodies and banking regulatory rules.30 www.bis.org/publ/bcbs176.htm.97
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BoxesBox 1. German Sparkassen 27Box
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EXECUTIVE SUMMARYBackground and obj
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nnAccess to Finance in enshrined in
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Chart A.Corporate Governance, Acces
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nThe study also shows that Corporat
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1. INTRODUCTION1.1. Focus and objec
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WSBI members are by definition acco
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For the particular case of developi
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2. THE LINK BETWEENCORPORATE GOVERN
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Table 2. Main features of the Missi
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Access to financeSparkassen promote
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All these examples illustrate how p
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In the case of Peru, the profits th
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Among the WSBI institutions that re
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BOX 2. KENYA POST OFFICE SAVINGS BA
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The fact that the banking system is
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3. CORPORATE GOVERNANCE -CONCEPTUAL
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Figure 2. Sound Governance of Finan
Page 45 and 46: As can be seen in the figure above,
Page 47 and 48: nnnAt the same time, the distance a
Page 49 and 50: The first two elements (the ownersh
Page 51 and 52: nHowever, this does not mean denyin
Page 53 and 54: Cooperatives are similar to mutuals
Page 55 and 56: 3.4. FoundationsFoundations do not
Page 57 and 58: 3.5. Good Corporate Governance prac
Page 59 and 60: F. DISCLOSURE AND TRANSPARENCYPrinc
Page 61 and 62: 4. ACCESS TO FINANCE -CONCEPTUAL FR
Page 63 and 64: 4.1. Financial deepening and improv
Page 65 and 66: The board does not have any executi
Page 67 and 68: In other words, sustainable financi
Page 69 and 70: The following table shows how the W
Page 71 and 72: The fourth dimension refers to the
Page 73: Table 8. Access to Finance in the f
Page 76 and 77: Only 27 members established in 21 c
Page 78 and 79: nnDCI (Depth of credit information
Page 80 and 81: 5.2. Corporate Governance and Acces
Page 82 and 83: 5.2.1. Corporate Governance and Ave
Page 84 and 85: Chart 8.Specific Corporate Governan
Page 86 and 87: 5.2.2. Corporate Governance and Ave
Page 88 and 89: Chart 13. Corporate Governance comp
Page 90 and 91: Chart 16. Corporate Governance Inde
Page 92 and 93: Chart 19. Specific Corporate Govern
Page 95: ANNEX 1: REVIEW OFTHE LITERATUREThe
Page 99 and 100: Figure A.1. Structure of agents' re
Page 101 and 102: The table captures the essence of s
Page 103 and 104: A case study built by Clarke et al
Page 105 and 106: A very recent contribution to the d
Page 107 and 108: For example, in Latin America, WSBI
Page 109 and 110: The paper examines whether a poor e
Page 111 and 112: For the survival of microfinance in
Page 113 and 114: ANNEX 2: CASE STUDIES 32CASE STUDY
Page 115 and 116: It is one of the major characterist
Page 117 and 118: Although Sparkassen are legally and
Page 119 and 120: Figure A.2. Corporate Loans Market
Page 121 and 122: Financial education is also an impo
Page 123 and 124: Corporate GovernanceKPOSB is wholly
Page 125 and 126: Among the initiatives that the gove
Page 127 and 128: Related to the concession of credit
Page 129 and 130: OPERATIONS1. Deposit Base: It was p
Page 131 and 132: Corporate GovernanceThe Central Ban
Page 133 and 134: To address the problem of capital,
Page 135 and 136: Financial inclusion ranges very hig
Page 137 and 138: CASE STUDY 4:SPANISH SAVINGS BANKS
Page 139 and 140: The uniform financial regulation of
Page 141 and 142: Figure A.3. Governing Bodies - Span
Page 143 and 144: The web-based tool www.rededucacion
Page 145 and 146: On the liability side, CMAC offer m
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A specificity of CMAC is that the m
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Table A.3.MissionMissionCMAC AREQUI
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As of September of 2009, the twelve
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Furthermore, the consensus culture
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ANNEX 3: QUESTIONNAIREQUESTIONI. Ge
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ANNEX 4:THE HONOHAN INDEX 43COMPOSI
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COMPOSITE MEASURE OF ACCESS TO FINA
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ANNEX 5:QUANTITATIVE RESULTSCountry
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Overall Corporate Governance IndexO
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REFERENCES- Andrianova, S., Demetri
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- FSD Kenya (2009), Financial Secto
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- World Bank (2006) The Role of Pos
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WSBI - ESBG - The Global Voice of S
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