Hence, it is left to the good faith of the shareholders to elect directors from the various specified areas with qualifications and experience that is appropriate to the bank. In regard to public sector banks, such good faith is expected when directors are nominated by government.
This term refers to an absence of the right incentive structure for bank owners, managers, depositors and supervisors to show prudent behaviour. Perhaps the best way to throw light on these types of problems is by means of a well-known example, namely the downfall of the US savings and loans institutions.