Boards of Banks

An earlier version of this paper won the Best Paper Award of the Corporate Governance SIG at EURAM. Abstract We construct a comprehensive data set with detailed biographic data on 12,010 board directors working for 740 large banks from 41 countries over the period 2000-2008. The data allow us to create a novel and reliable measure of director independence. We report many new findings. Bank board independence increases rapidly and substantially in the pre-crisis period, peaking at about 67% in 2006. High independence levels are predominantly a US phenomenon, as US banks display board independence levels that are on average 19 percentage points higher than those of non-US banks with similar characteristics. We find that country characteristics explain most of the cross-sectional variation in bank board independence. This evidence suggests that country specific laws and regulations affect the composition of boards of banks. Consistent with this interpretation, we find that bank board independence is lower in countries where courts can remove bank directors and where regulations allow for two-tiered boards. In contrast, there is no robust evidence that investor protection and financial development are related to bank board independence. We also find that bank characteristics play a more pronounced role in determining other board characteristics (such as board size and director busyness) than in determining board independence.