Regulatory Governance Mechanisms in Banks

This paper reviews the regulatory governance mechanisms that increase banking stability. Deposit insurance is one such mechanism; however, its design may generate a moral hazard. There is consensus on the impact of deposit insurance on increasing risk-taking, but not on the effect of the capital adequacy ratio or on regulation restraining competition. Moreover, supervisory practices that require the disclosure of accurate and transparent information by banks may be more effective than official supervisory powers that monitor credit allocation.
Keywords: Corporate governance; Bank; Literature review; Risk-taking, Regulatory mechanisms; Board of directors; Internal controls.
JEL: G28; G34