Subprime crisis and board (in-) competence: private versus public banks in Germany

Abstract: This article examines evidence for a systematic underperformance of Germany's state-owned banks in the current financial crisis and asks if the bank losses can be traced to the quality of bank governance. For this purpose, it examines the biographical background of 592 supervisory board members in the 29 largest banks and finds a pronounced difference in the finance and management experience of board representatives across private and state-owned banks. Measures of 'boardroom competence' are then related directly to the magnitude of bank losses in the recent financial crisis. The data confirms that supervisory board (in-)competence in finance is related to losses in the financial crisis. Improved bank governance is therefore a suitable policy objective to reduce bank fragility.