Corporate Governance of Banks and Support from the State : What Role in the Solution to the Financial Crisis

There has been increasing pressure for stricter and more coordinated regulation on bank governance. However, though coordinated measures at European level have often been suggested, little has been done in terms of regulatory provisions probably also because corporate governance systems in Europe are actually quite different and are based on three different possible board structures. The one-tier board system, typical of the UK, Spain and many other countries, the vertical two-tier system, typical of Germany and the Netherlands in the case of large companies and countries in which companies may choose between different models, such asItaly – where the classic and most widespread model is the horizontal two-tier model but companies may also adopt the vertical two-tier or the one-tier model – and France. The Bank of Italy has on many occasions stressed the importance of corporate governance for the sound and prudent management banks and in March 2008 issued Supervisory provisions concerning bank's organization and corporate governance. Such provisions address various aspects of bank corporate governance and contain specific indications as concerns management compensation. Morevoer, banks are required to conduct a self assessment on their governance practices and prepare a "corporate governance project."The comprehensive Supervisory provisions issued by the Bank of Italy represent an interesting case in the current debate, especially in Europe, since they are designed to fit to any governance system, they are the first to address compensation issues within a general governance framework, and, in line with better regulation, they are divided into general principles and implementing guidelines which leave banks with some flexibility as concerns solutions. The objective of the paper is twofold, to analyse the innovative content of the Supervisory provisions and to provide a first overview of the impact of this regulatory change on Italian listed banks