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- Title
WHO'S LOOKING OUT FOR THE BANKS?
- Authors
KRESS, JEREMY C.
- Abstract
When the Gramm-Leach-Bliley Act authorized financial conglomeration in 1999, Professor Arthur Wilmarth, Jr. presetently predicted that diuersified financial holding companies would try to exploit their bank subsidiaries by transferring government subsidies to their nonbank affiliates. To prevent financial conglomerates from taking advantage of their insured depository subsidiaries in this way, policymakers instructed a bank's board of directors to act in the best interests of the bank, rather than the bank 's holding company. This symposium Article, written in honor of Professor Wilmarth's retirement, contends that this legal safeguard ignores a critical conflict of interest: the uast majority of large-bank directors also serue as board members of their parent holding companies. These dual directors are therefore poorly situated to exercise the independent judgment necessary to protect a bank from exploitation by its nonbank affiliates. This Article proposes to strengthen bank governance-and better insulate banks from their nonbank affiliates-by mandating that some of a bank's directors be unaffiliated with its holding company. As long as banks arepermitted to affiliate with nonbanks, this reform is essential to ensure thal someone is looking out for the well-being of insured depository institutions.
- Subjects
BANKING industry; BANK holding companies; CORPORATE governance; BANK directors; CONFLICT of interests; BANKING laws; NONBANK financial institutions
- Publication
University of Colorado Law Review, 2022, Vol 93, Issue 4, p897
- ISSN
0041-9516
- Publication type
Article