The value of networks in the governance of banks

The economic literature points out the impact of corporate networks on corporate decisions and firm performance. Corporate networks can arise from direct or indirect ownership connections among firms or from personal relationships of firm members, such as board interlocks or social interactions among managers and directors, due, for instance, to shared education or employment experiences. While the topic is of interest for any kind of corporation, only limited attention has been given to bank networks and their impact on bank governance and performance. Especially following the 2007-2008 financial crisis, such investigation has overwhelmingly become crucial given the importance of understanding the effect of governance mechanisms and network strategies on bank risk-appetite, performance and stability. Therefore, this paper provides a comprehensive review of the empirical evidence on how banks’ network affects their corporate choices and performance and, more importantly, points out the need of further empirical investigation in order to better assess the relevance of informal personal connections on banks’ performance in terms of both relationships within the board of directors, and between the board of directors and the CEO. Indeed, tracing the impact on banks’ performance of the strength and depth of personal connections could also support the supervisory authorities in controlling also for informal interlocking.