Excessive corporate risk taking by systemically important financial institutions (SIFIs) is widely seen as one of the primary causes of the global financial crisis. In response, an array of international reforms, under the auspices of the Group of Twenty’s (G20’s) standard-setting bodies, has been adopted to try to curb that risk taking. However, these reforms only impose substantive requirements, such as capital adequacy, and cannot by themselves prevent future systemic collapses.

To complete the G20 financial reform agenda, SIFI managers should have a duty to society (a public governance duty) not to engage their firms in excessive risk taking that leads to systemic externalities. Regulating governance in this way can help supplement the ongoing regulatory reforms and reduce the likelihood of systemic harm to the public.

  • Steven L. Schwarcz is a CIGI senior fellow and the Stanley A. Star Professor of Law & Business at Duke University. Steven is an expert on systemic risk and financial regulation, corporate governance of systemically important firms, cross-border resolution measures and sovereign debt restructuring.