Board monitoring and loan portfolio quality in banks: empirical evidence from Italy

This paper aims to analyze the relevance of the board monitoring role on loan portfolio quality in banks. We use a sample comprises a totality of Italian-based banks, listed at Borsa Italiana SpA in 2006-2008 and a number of accounting proxies to express the loan portfolio quality of a bank. The results of the analysis show an overall weakness of the board role in monitoring loan portfolio quality of the bank, in terms of dynamic risk, with the subsequent damage of the interests of stakeholders. A greater attention of board monitoring is meant to "traditional" even residual risk (non performing loans and loss). A partial contribution of the monitoring board (only Audit Committee) in provisions shows a cautious and attentive behavior to certain losses in the portfolio. In limited cases of existence of a relationship between board monitoring and portfolio quality (recovery rate), a total contribution (Independents and Audit Committee) but negative for the bank is reported.