Progress on Improving Banks’ Corporate Governance

by Lee J. Ernst, for Financial Services Commission, January 11, 2010.

The Global Financial crisis has shed light on the importance of Corporate Governance in Financial Institutions. In particular, banks have been the major beneficiaries of government releif programs* such as government guarantee for bank deposits and foreign debts.

However as the OECD and the BCBS noted, banks’ board of directors often neglected their social responsibility by failing in risk management, pursuing short-term profits, and paying out excessive compensation.

*Since September 2008, 24 countries including Korea have adopted government guarantee programs to protect the financial system.

Against this backdrop, improving Corporate Governance in financial institutions, particularly in the banking sector, is being actively discussed at the global level. Direct financial regulations may bring about side effects by undermining financial intermediation and adding burden to financial consumer. In contrast, improving Corporate Governance minimizes the side effects and restores the public trust in financial institutions to ensure that the financial sector can support the real economy and prevent the recurrence of crisis…(continue reading)


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