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diversified owners. Non-shareholder managers generally prefer to take less risk
than owners because their jobs are linked to the survival of the bank. Of course,
to the extent that the manager has a large equity stake in the bank or holds stock
options, this would enhance his or her risk-taking incentives through enticing
potentially large rewards for high-return investments. In practice, however, bank
managers often do not hold much bank stock, placing them at odds with diversified
bank owners in their views on risk taking.
Thus, the comparative power of owners, managers, and debt holders within
bank’s governance structure matters. Banks with an ownership structure that
empowers diversified owners will tend to take more risk than banks in which owners
have less influence.
New evidence
In a recent paper (Laeven and Levine, 2008), we test how national regulations
interact with a bank’s private governance structure to determine its risk-taking
behaviour. It is crucial to examine regulations and governance simultaneously.
If regulations boost the risk-taking incentives of bank owners but not those of
managers and debt holders, then the actual change in bank risk depends on the
comparative power of owners within the bank’s governance structure. Thus, the
same regulation will yield different effects depending on the governance structure
of each bank. Similarly, changes in policies toward bank ownership, such as allowing
private equity groups to invest in banks or changing limits on ownership concentration,
could have differential effects depending on bank regulations.
Examining national regulations or bank governance in isolation will almost
certainly yield misleading results since regulations and governance structures differ
across countries. To address this, we first collected new information on the
ownership and management structure of banks and merged this with data
on bank regulations around the world. The new database covers detailed data on
banks across 48 countries and traces the ownership of banks to identify the ultimate
owners of bank capital and the degree of ownership concentration.
90 The First Global Financial Crisis of the 21st Century Part II
2 See influential theories by Galai and Masulis (1976) and Jensen and Meckling (1976), and recent empirical work
on nonfinancial firms by John, Litov, and Yeung (2008).
Most big banks have very concentrated ownership
It turns out that banks around the world are generally not widely held, despite
government restrictions on the concentration of bank ownership, though there is
enormous cross-country variation.
• About 75% of major banks have single owners that hold more than
10% of the voting rights.
• 20 out of 48 countries do not have a single widely held bank (among
their largest banks).

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