Resilience and Corporate Governance in Banks: A Post-Crisis Assessment of Organisational and Regulatory Failure

  • Maria Tatsiou

Student thesis: Phd


During the last century we have experienced several financial crises with the most recent ones being those of 2007-2008, which have led to the collapse of many financial institutions. The failure of financial institutions has often built up to lead to financial crises that spread to the whole financial sector and the economy. One of the thesis’s main arguments is that resilience should be “part and parcel” of the business strategy through ex ante preparedness by adopting the necessary corporate governance (CG) standards and ensuring compliance with financial regulation. Thus, the thesis’ purpose seems to be more squarely focused on the role of CG in mitigating problems of risk-taking and more specifically of leverage and liquidity. CG is seen as a mechanism in ensuring that risk-taking and instabilities created are curbed, but it is believed to have failed in its purpose after the events of the global financial crisis (GFC). The thesis evaluates various perspectives of corporate governance, the Efficient Market Hypothesis (EMH), and their relationship with managerial incentives. Managerial incentives have promoted increase of share price value and firm growth to maximise managerial compensation. Subsequently, this thesis studies how the changes in the financial environment shaped managerial incentives and encouraged changes in the banking model. Managerial incentives contributed to the shift towards investment banking and the use of new financial instruments. Share-based managerial incentives not only failed to prevent excessive risk-taking, but also exacerbated its effects since investment banking is inherently riskier than retail banking. Investment banking is interconnected with the shadow banking sector, and thus, more prone to spill-over effects and contagion risk. The regulatory framework pre-GFC is evaluated along with how its interaction with the theoretical framework that has undermined resilience. The use of the “comply or explain” approach and the assessment of managerial decisions against market norms has undermined accountability and does not provide incentives to shareholders to hold managers accountable. Furthermore, shareholders do not complain of risk-taking as long as the firm is profitable. Thus, market discipline as used by Basel I and II has failed to discipline managers in reducing risk-taking. The foundations of the problem lie in the fact that there are information asymmetries that have not been bridged with market disclosure. The case studies on Northern Rock and the Royal Bank of Scotland are used as a demonstration of this relationship. Managerial strategy has led to excessive risk-taking, and with the absence of CG standards promoting good CG practices, aggressive business models led to the failure of RBS and Northern Rock. Finally, the changes made post-GFC are critically analysed as to whether they would be successful in ensuring bank resilience by providing the necessary CG standards to align managerial incentives with regulation. The thesis looks at the proposals made, and the new regulatory measures adopted post-Crisis. It examines whether they can align managerial incentives with regulation through CG. The thesis concludes that without amendments in CG standards and the acknowledgement of the relationship between CG and financial regulation, attempts to improve the resilience factors, risk-taking, liquidity, and leverage on their own will not be successful. This is because risk-taking will continue creating problems, as market discipline is not an effective disciplinary mechanism.  
Date of Award1 Aug 2021
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorMichael Galanis (Supervisor)


  • Managerial remuneration
  • Basel III
  • Royal Bank of Scotland
  • Investment banking
  • UK CG Code
  • Corporate Governance
  • Managerial incentives
  • Excessive risk-taking
  • Northern Rock
  • Regulation
  • Leverage
  • Market discipline
  • Liquidity
  • Resilience

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