More on Corporate Governance in Financial Institutions

by JB for The Defining Tension, November 17th, 2010.

Today the European Commission published the results of its public consultation on corporate governance in financial institutions. Although the Commission notes that the financial crisis has not directly been caused by a lack of proper corporate governance, it does believe that it added to the excessive risk-taking of financial institutions. Therefore the Commission aims to answer “the fundamental question whether the existing corporate governance regime is deficient as far as financial institutions are concerned and seeks views on possible ways to address the deficiencies”. According to the Commission, the responses to the consultation highlighted the following messages:

• The respondents agree with the analysis in the Green Paper of the weaknesses in corporate governance in financial institutions. They support the Commission’s goal of promoting effective corporate governance as well as the policy intent underlying the principles articulated in the Green Paper. The respondents also support a more effective supervision of the implementation by financial institutions of principles on good corporate governance.

•  Financial institutions recognise that effective governance makes a meaningful difference in corporate performance and are currently reviewing their practices. Although many respondents highlight that certain failures in corporate governance in financial institutions were to a large extent due to a lack of effective implementation of existing rules, a number of respondents think that regulatory framework could be improved further. 

•  Clear definition and division of responsibilities is fundamental. For a number of respondents, more clarity is needed as regards respective duties of different bodies within the financial institution. Multiplication of controls and procedures should not lead to a confusion of which body is finally responsible for the decision-making and the overall governance of the financial institution. (continue reading… )