Law & Economics of Banks Corporate Governance in the Bail-In Era

The paper aims at introducing an in-depth analysis of Banks Corporate Governance in the after-crisis regulatory environment, going through theoretical and methodological specifications for starting an economic analysis of the post-crisis stream of reforms in the financial system, especially in the Eurozone. In a nutshell, this research has two main purposes: on the one hand, assess whether departures from standard corporate governance paradigms in banks are desirable; on the other hand, shed light on the impact of the rules on the resolution of distressed institutions on governance mechanisms. To achieve those goals, the paper carries out a survey the literature about Bank Governance and Bail-in Regulation in a functional manner to introduce the unexplored link between the new resolution regime and Corporate Governance, focusing the governance role of bail-inable creditors, as “potential residual claimers”. The literature review is supplemented and enriched by the necessary theoretical tools to properly set a Law & Economic analysis, both for what concerns specific agency relationships between corporate constituencies and the nature of financial regulation and bank insolvency. The paper concludes that the after-crisis reforms, and the bail-in regulation, in particular, represent the cornerstone for a new understanding of the relationship between corporate constituencies of banks. Moreover, the links between governance-related issues and the effectiveness of resolution mechanisms constitute a solid argument in favor of a positive role of Corporate Governance in addressing individual as well as systemic stability issues.