Bank Governance Impact On Financial Stability

Abstract

The study examines the impact of bank governance on the financial stability of Algerian commercial banks. Using panel data from eight banks over 2014–2021, totaling 64 bank-year observations, the findings reveal that board size, risk committee, and board committees significantly enhance bank stability. An expanded board and varied committees, especially the risk committee, enhance risk assessment and management, fostering cautious decision-making. Conversely, chairman board tenure negatively correlates with stability, suggesting that long-tenured chairpersons may become overconfident, leading to riskier strategies. Control variables further indicate that ownership concentration, capital adequacy, and bank size positively influence stability. High ownership concentration enhances monitoring, reducing excessive risk-taking. Capital adequacy strengthens resilience by absorbing losses and limiting risk exposure. Larger banks benefit from portfolio diversification and superior risk management. Overall, the results suggest that effective governance in Algerian banks reinforces financial stability by enhancing risk oversight, distributing control more efficiently, and preventing power concentration. Periodic leadership renewal ensures decision-making aligns with long-term stability goals, highlighting the crucial role of governance mechanisms in mitigating risks and sustaining financial robustness.