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World Bank questions big bank benefits

Friday 11 March 2011 - by Will Henley

The World Bank's chief economist on the financial sector has suggested big banks provide little benefit to shareholders and reforms of their governance and pay structures are required.

Asli Demirgüç-Kunt, writing in GFS News today, says that that bank managers may have benefitted from the rise in global banks, but often at the cost of increased risk.

Revealing the results of a study she co-authored, the chief economist says that in the absence of apparent market discipline "regulatory intervention appears to be called for".

Demirgüç-Kunt writes: "Bank growth has not been in the interest of bank shareholders in smaller economies, while there are doubts whether shareholders in larger economies have benefited."

"Growth was in the interest of bank managers. Large bank size can benefit bank managers because it likely boosts their status and pay. It is less clear that large bank size is in the interest of bank shareholders."

To read Demirgüç-Kunt's article in full, click here.

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