Hence there is a need for standards of corporate governance which extend beyond the strictly legal obligations of a firm. The banking industry presents unique challenges for corporate governance because the scope for conflicts of interest between insiders and outsiders is larger than in many other industries. The scope for conflicts of interest arises for several reasons.
The balance sheets of financial institutions are opaque which makes it hard for outsiders such as depositors to evaluate their true financial condition. There are informational asymmetries with insiders having more accurate information than outsiders. Outsiders typically consist of atomised individuals which mean that they face “collective action” problems which impede their acting together in an optimal manner to defend their interests.