Governance of Banks in an Era of Regulatory Change and Declining Public Confidence

Corporate governance reforms have become more intrusive for
banks than might be thought appropriate for “ordinary corporates”. “Heavier”
regulation in this area is justified by the public interest at stake in bank activity
and the risk to the public interest if a bank is allowed to fail (and the cost to the
public of saving a bank from failure). The public interest (and the interest of all
stakeholders) also has implications for the scope of the duty of care of bank
directors.
Conventional concepts of corporate governance address traditional risk
areas in banking activity as well as tensions such as the “agency problem” and
the need for oversight by directors of senior management. However, a new set of issues related to public trust has been triggered by the LIBOR scandal and
most banks, and many commentators, profess a desire to “restore public trust”
and address acknowledged shortcomings in their approach to ethical questions
and the soundness of their corporate culture. A related, but different, set of
challenges arises as a result.