This study aims to empirically identify how a bank's board structure (size, independence, and members' affiliations) and quality (experience, background, and skills) affect its risk incentives. Specifically, it investigates whether banks' solvency and corporate governance nexus changed after the 2007-2009 financial crisis. We employ a cross-country sample of 239 commercial and publicly traded banks covering 1997-2016 and a panel regression for 40 countries. We acknowledge a negative relationship between board size and bank stability and demonstrate that an independent board may have constrained rather than encouraged risk in banks. The global financial crisis has not changed much in the corporate governance and stability of banks nexus. These findings are robust even while controlling for a range of alternative sensitivity estimations for bank stability. This result indicates that in the aftermath of the market meltdown, we still need to strengthen corporate governance practices which may mitigate the adverse effects of the crisis on the banking sector.

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The paper presents the concept of a sustainable bank by developing a framework based on performance of different business models. Traditional banking and investment activities, such as trading in securities or securitization, may reduce the risk of commercial banks and provide an attractive approach to sustainable finance. Using the method of assessing the performance of a bank, the study appraises the degree of sustainability of the bank from different stakeholders’ points of view. The aim of the article is to verify the research question: how does diversification of traditional activities of commercial banks affect their sustainability? The analysis has been extended by the importance of country-specific and macroeconomic factors. The survey was conducted on 368 commercial banks from European countries, using data from the period 1998−2015. The study contributes to the ongoing discussion on the recognized profitability and sustainability nexus as an important part of sustainable finance that may be a powerful solution to financial crises.

Research background:Motivation for this study is the rapid development of conglomerate banking stimulated by the synergy between the traditional and parallel investment activity of banks before the 2007-2008 financial crisis. Existing studies do not answer the question about the positive influence of diversification on bank stability. They state that the combination of lending and non-interest income allows benefits to be derived from risk diversification. However, on the other hand they emphasise that non-interest and interest incomes are strongly correlated, which does not bring positive effects from diversification. Purpose: Scientific problem aimed to be solved is to verify how the diversification of activities in commercial banks into non-interest products (i.e. trading, securities-based investment activities, and derivatives) brings positive effects such as income stabilization and risk reduction. We examine the implications of banks' risk adjusted ROA that manifest themselves as spreading and growing instability. Research methodology: We use a panel regression model, through a dataset that covers 777 international banks, in 91 selected countries of the world, spanning the period of 1996-2015. Results: We document that the diversification of a bank's operations is varied and depends on a bank's characteristics, including asset size. Novelty: The study contributes to the on-going discussion on the separation of retail and investment banks with a view to enhancing their profit stability.