Challenges in Group Governance: The Governance of Cross-Border Bank Subsidiaries

by W. Richard Frederick for the International Finance Corporation (IFC)

This publication focuses on the governance of the subsidiaries of banking groups, with particular emphasis on cross-border bank subsidiaries. Thought on the issue originated during a series of high-level meetings organized by IFC on the governance of banks in Southeast Europe (SEE) in 2010—a time when the effects of the 2007–2008 financial crisis still lingered, giving the meetings a sense of urgency. Participants reflected on the role that governance may have played in the crisis and what could be done to prevent a recurrence.
One of the key observations made in developing this publication was that many banks view governance of subsidiaries as a “tick the box” exercise with marginal value to their operation — particularly when regulatory requirements do not take into account business exigencies. On the other hand, banks take governance seriously and appreciate its value when rules are balanced, measured, and practical, helping them achieve results. Another observation is that many banks do not fully appreciate the role governance plays in controlling risk in increasingly complex international banking groups.
The governance of bank subsidiaries has received insufficient study, and empirical evidence is scant—though there is burgeoning interest among banks. Given the scarcity of information and lack of a clear consensus, this publication stops short of making detailed recommendations. It encourages supervisors to adapt their approaches to fit market realities and to be more aware of the incentives for good governance. It also emphasizes the importance of proportionate and risk-driven approaches to supervision. At the same time, it encourages banks to look beyond the achievement of business goals and consider the issues of risk and stability that are ultimately a concern to us all. Download Publication Here.


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