Friday, July 17, 2009
Banks role in Credit Crunch
The role of UK banks in the credit crisis is expected to come under scrutiny in a report due out later today.
Analysts say the review of corporate governance, by ex-City regulator Sir David Walker, may pave the way for boardroom practices to be overhauled.
The report, commissioned by the Treasury, is expected to focus on the way risk is managed at banks.
The issue of pay and how it is linked to risk is also likely to be addressed.
Walker has spoken to banks, institutional investors, and experts in remuneration and corporate governance in preparing the report.
He is expected to set out plans for directors to have higher levels of skill and to receive formal training.
The report will stress the need for banks to be run by bankers.
Responsibility
After Royal Bank of Scotland came close to collapse under Sir Fred Goodwin, it is also expected that Walker will recommend that bank boards be forced to show they are able to challenge a chief executive who they feel is endangering a bank.
Non-executive directors who do not have responsibility for the day-to-day management of the business are expected to keep a close eye on the overall risks being taken by banks.
Some feel that they failed in this responsibility prior to the financial crisis.
Transparency
There is widespread call for more transparency in pay. Many star traders, for example, can earn many times more than board members but there is no obligation for them to disclose their bonuses to shareholders.
The bonus culture is seen as encouraging excessive short-term risk taking at banks, which was a major factor in sparking the financial crisis, which in turn triggered the global economic slowdown.
There is genuine concern that big bonuses are making a comeback after US banking giant Goldman Sachs announced earlier this week that it set aside $6.65bn (£4.1bn) between April and May, more than $225,000 for each employee, for pay and bonuses.
DATED: 17.07.09
FEED: AM
