Corporate Governance in Financial Institutions: Lessons to be Drawn from the Current Financial Crisis, Best Practices

This paper analyzes corporate governance failure in financial systems in 2008. It presents examples of best practice on corporate governance of regulated financial institutions.

Various factors combined with weaknesses in corporate governance to cause the financial market collapse in 2008. The paper states that timely and effective checks and balances in governance systems might have helped mitigate the effects of the crisis. It highlights the need to examine the failure of the current corporate governance system and develop corporate governance principles to correct it.

The paper limits its scope to corporate governance in financial institutions, particularly, banks and insurance companies. It draws on analyses and studies undertaken at international, European and national levels. It discusses:

• Composition, duties and functioning of boards of financial institutions and position of non-executive directors;
• Definition and reporting lines of risk management;
• Role and expected behaviour of shareholders and possible impact of forthcoming measures on crisis management;
• Powers and duties of supervisors;
• Role of statutory auditors in risk management;
• Effective application, monitoring and enforcement of corporate governance.