When the value of a bank share is low, shareholders – and with them the supervisory board as their representative – have an interest in the bank increasing the risk of its operations rather than reducing it. After all, if the value of the bank’s equity approaches zero, shareholders can benefit from a high risk appetite on the part of management because they now profit from any price gains and do not otherwise have to bear any losses. Therefore, the market discipline of a bank in the form of a joint stock company needs to be enforced by the supervisory authorities. – See investor protection, supervisory board member, risk, unlimited, expertise. – Cf. ECB Monthly Bulletin of February 2005, pp. 59 f.; Deutsche Bundesbank Monthly Bulletin of October 2005, pp. 74 ff. (detailed explanations).
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