Posts Tagged 'Banks'

Will the corporate governance structure change?

by Deepak Patel for Business Standard

With the government notifying new rules for the appointment of (IDs) for public sector banks (PSBs), public sector insurance companies, Reserve Bank of India (RBI) and (FIs), it has become clear that the government wants to alter the level ofpractised in these boardrooms. However, many experts familiar with the functioning of these companies’ boards feel that it might not be enough to change the status quo and more needs to be done to change the governance structure in the boardrooms.

So what has changed?
While the Companies Act, 2013, which was implemented last year, was one step forward to give IDs more power, they were much more broadly defined – focusing more on the duty on the ID to ensure that the interest of all stakeholders are protected; particularly minority shareholders.

According to Companies Act, 2013, an ID should be a person who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience. Further, he/she should also possess ‘appropriate skills, experience and knowledge’ in one or more fields of finance, law, management, sales etc.

On the other hand, the rules recently notified for PSB, FIs, and have a much more focused tone – giving them a tenure of six years, asking for a minimum 20 years of experience from persons coming from industry, putting an age restriction at 67 years.

Moreover, the government officials who have 20 years of experience with 10 years at joint secretary or above; retired chief managing directors/executive directors of PSBs after one year of cooling period; academicians, chartered accountants and professors with more than 20 years experience ; will be the only eligible ones to apply.

“The normal expectation globally of the role of an Independent Director is essentially two-fold: advisory and monitoring,” said an expert who did not wish to be named.

“While the focuses more on the ‘monitoring’ part – asking ID to ensure the interest of all stakeholders; particularly minority shareholders; the rules for ID appointment in and insurance companies envisage him/her more as a ‘strategic advisor,” the expert added. ” For example, one of the acceptable qualifications of an independent director is that he or she led a reputed organisation or brought turnaround in a failing organisation.” Read more here.

Guidance for the Directors of Banks (by Richard Westlake – Foreword by Leo Goldschmidt)

Focus11

Focus 11

The need for sound governance of banks worldwide has never been stronger. After the global financial crisis of 2007–2009, spectacular bank failures – whether caused by greed, incompetence, or indifference – are still occurring. This Guidance for Directors of Banks is intended mainly for three groups of readers: (i) New directors with experience in banking; (ii) Directors who understand governance, but have no experience in banking; and (iii) New directors who have no experience of either banking or being a director.

It is mainly an introduction for the directors of non-complex banks – whose main business is to take deposits and provide loans – and is not designed for the directors of large, complex banks or investment banks operating in global capital markets and dealing with complex corporate structures. We hope, however, that even relatively experienced directors of banks, and those who work with them, may find the book a useful refresher.

Main topics discussed in the Guidance are:

  • Where Banks Fit in the Corporate Governance Framework
  • The Unique Role of Banks
  • Governing Risk
  • Board Structures and Directors’ Duties
  • Effective Board Decision Making

Since the late Jonathan Charkham CBE wrote the first edition of this Guidance book in 2003, the world has changed dramatically. During the crisis, many household-name banks merged or disappeared. Now there is stronger supervision of banks and greater expectations of boards, so directors need to be knowledgeable about and engaged with their bank to provide direction and hold bank management to account. Download document here!

Corporate Governance of Banks – Second High Level Policy Meeting for Banks and Regulators from Southeast Europe

published by The Global Corporate Governance Forum, June 16th, 2011.

The IFC Global Corporate Governance Forum and the European Bank for Reconstruction and Development are helping banks and other financial institutions in Southeast Europe improve their corporate governance practices to enhance their performance and competitiveness.

At a high level policy meeting on corporate governance of banks in the region, hosted by the EBRD, institutional experts and regional participants reviewed and endorsed a Policy Brief on Corporate Governance for Banks in Southeast Europe. The brief included recommendations on how to improve board practices, disclosure, and risk management.

The Policy Brief will be a non-binding document to serve as a reference point, together with other international guidance such as the OECD Principles of Corporate Governance and the Basel Committee Guidance on Enhancing Corporate Governance for Banking Organisations (“Basel CG Guidance”).

One key recommendation of the policy brief is targeted at bank group structures and stipulates that parent banks need to be aware of subsidiary bank governance practices and ensure that subsidiary banks adhere to appropriate governance practices from both parent and subsidiary jurisdictions. The policy brief also provides extensive recommendations on internal controls and the roles of supervisors. (continue reading… )

Strengthening Risk Governance in Banks – Lessons From the Design and Implementation of the Forum’s Financial Markets Recovery Project

published by The Global Corporate Governance Forum, June 7th, 2011.

The global financial crisis exposed weaknesses in banks’ corporate governance systems, particularly their risk management policies and procedures. To help banks address these problems and thereby prevent, or at least mitigate, future systemic banking crises, the Forum launched the Financial Markets Recovery Project. The lessons from the project design and rollout can inform the work of bank board directors and training professionals working with financial institutions. June 2011.

DOWNLOAD THE LESSONS LEARNED (PDF)

An update on asymmetric information and corporate governance in bank bailouts

by Edward Harrison for Credit Writedowns, October 21, 2010.

Last June I wrote a post on the topic of corporate governance that pointed to one of only two outcomes as the likely result of the bank bailouts. Outcome number one was bank prudence and low credit growth in the face of uncertainty. Outcome number two was a reckless heads I win, tails you lose mentality that permeated the 1980s  leading to the S&L crisis. To date, we have mostly seen outcome number one, which (if you can believe it) is the thing you would like to see.  But this necessarily means slow growth until the uncertainty about earnings and litigation passes.

Let me take this opportunity to update you on my thinking in the wake of the foreclosure crisis.

Regulatory forbearance means under-performance or excessive risk

What we have just witnessed over the past decade is a credit bubble in the financial sector, in the US and elsewhere. The epicentre of the bubble was housing in the US, the UK, Spain and Ireland. During the good times, no one asks any questions. In bubbles, all is well and risk appetite increases. But when the bust happens, manybanks are forced into an undercapitalized position. The question for regulators is what to do about this.  One could exercise regulatory forbearance, allowing the banks to earn their way out of trouble as the Japanese did. Or one could put the banks into receivership, recognize the bad assets, and move forward as the Scandinavians did (continue reading).

Commission sets out its plans for a new EU framework for crisis management in the financial sector

by Europa Press Releases, October 20th, 2010.

The crisis demonstrated clearly that when problems hit one bank, they can spread to the whole financial sector and well beyond the borders of any one country. It also showed that systems were not in place to manage financial institutions facing difficulties. Very few rules exist which determine which actions should be taken by authorities in the case of a banking crisis. That is why the G20 agreed that crisis prevention and crisis management frameworks had to be set up. Today, the European Commission responds by setting out its plans for an EU framework for crisis management in the financial sector. These pave the way for legislation due by spring 2011 which will create a comprehensive crisis management framework for banks and investment firms.

Internal Market and Services Commissioner Michel Barnier said: “First, we must try to avoid a financial crisis in the future. That is why our work to make the banking sector stronger and to create a real supervisory framework is so important. But banks will still face difficulties in the future. They might even fail and should be allowed to do so. We need to make sure that they can do so without bringing down the whole financial system, or risking that taxpayers are called on to pay the costs. No bank should be “too big to fail” or too interconnected to fail. That is why we need a clear framework which ensures authorities throughout Europe are well prepared to deal with banks in difficulty and handle possible bank failures in an orderly manner. That is the aim of today’s plans.”

The Commission’s Communication sets out the main elements that will be part of the Commission’s legislative proposals next year, and is the result of extensive consultations over the past months (see IP/09/1549). Beyond the immediate priority of putting in place efficient crisis management arrangements in all Member States, the Communication also includes a “roadmap” providing a longer term view of some of the major challenges which will need to be overcome in order to ensure smooth handling of crises. The new framework described in the Communication will be broad-ranging and aims to equip authorities with common and effective tools and powers to tackle bank crises at the earliest possible moment, and avoid costs for taxpayers. (continue reading… )

How Can Financial Supervisors Improve the Effectiveness of Corporate Governance? Private Sector Opinion #18

Posted by Alexey Volynets & Santiago Chaher (Corporate Governance Leaders) for the Global Corporate Governance Forum. PSO by by John Palmer and Chang Su Hoong

New initiatives are under way to improve governance, including guidelines from supervisory standard-setting bodies such as the Basel Committee on Banking Supervision. These initiatives should help, but more is needed to change board culture and behavior. Financial supervisors have an important stake in ensuring sound corporate governance as a strong underpinning for effective supervision. This paper suggests measures that financial supervisors can take to improve governance in regulated financial institutions. (continue reading… )

Corporate Governance and Risk Management: Making Financial Institutions Better

by IFC, August 13th, 2010.

This short video discusses IFC client engagement and the importance of implementing sound corporate governance practices in banks and other financial institutions. It looks at how to manage risks related to credit, market, liquidity and operational issues. The discussion is moderated by Jim Spellman, a consultant for the Forum.

EC launches consultation on corporate governance

by Sebastian Cheek, for Professional Pensions, June 3, 2010

The European Commission has launched a public consultation on a Green Paper looking at reforming corporate governance in financial institutions.

The consultation – issued in response to weaknesses in corporate governance among financial institutions after the financial crisis – focuses on a number of issues, including how to manage risk more effectively and how to empower shareholders.

n March last year, the commission committed itself to improving corporate governance in financial institutions, saying it would ensure the interests of consumers and other stakeholders are better taken into account, businesses are managed in a more sustainable way and bankruptcy risks are reduced.

In February this year the EC said the paper would look at the adequacy and sustainability of the European pension system (PP Online February 25).

European Commission internal market and services commissioner Michel Barnier said: “I am convinced that true crisis prevention starts from within companies. If we are to prevent future crises, financial institutions themselves need to change….(continue reading)

Directors face annual election under new corporate governance rules

By Helia Ebrahimi, for Telegraph UK, May 20, 2010

British business faces one of its biggest ever corporate governance shake-ups next week when new rules are published that could impose external reviews on board performance, force directors to face annual election and spell out the responsibilities of non-executive directors and chairmen.

The Financial Reporting Council (FRC) will publish the first part of an overhauled Combined Code in the wake of Sir David Walker’s review into the banking crisis last year which called for a changes in boardroom accountability.

The UK Code of Corporate Governance, due to be published next Friday, will deal exclusively with corporate governance for boardroom directors and companies. It is set to be made active by the Financial Services Authority on June 30 on a “comply or explain” basis.

The second part of the new code, which deals with the responsibilities of investors – to be called the Stewardship Code – will be published one month later at the end of June…(continue reading)


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