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2022 | OriginalPaper | Chapter

33. Financial and Bank-Specific Expertise

Author : Francesco de Zwart

Published in: The Key Code and Advanced Handbook for the Governance and Supervision of Banks in Australia

Publisher: Springer Nature Singapore

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Abstract

Chapter 33 examines financial and bank-specific expertise. We find that lack of financial expertise is predictive of bank failure and identify inadequate risk management and internal controls. We construct governance variables in the negative direction for a deficiency in knowledge of risk management processes, measurement and methodology and a deficiency in banking expertise before identifying banking-industry-specific knowledge, skills/competencies and professional qualities.

There requires a mix of financial and non-financial industry knowledge for effective challenge and we examine how to determine the balance for effective challenge, testing and debate including composition of the board and relevant expertise and the board selection process.

We move to examine the financial industry expertise and independence trade-off and construct a number of governance variables for the number and time commitment of non-executive directors for audit, remuneration and risk committees. We review the non-executive director independence variables from Stage 1 and construct relational effect paths for the NED number and time commitment for the Compensation/Remuneration and Risk Committees.

Chapter 33 concludes with development, training and support of non-executives and new non-executive director mentoring by senior executives and the ‘senior independent director’.

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previous chapter APRA Information Paper 2019 on Risk Culture

next chapter Role, Responsibilities and Time Commitment for the Chairperson

Francesco de Zwart, Enhancing Firm Sustainability Through Governance, The Relational Corporate Governance Approach, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, Corporations, Globalisation and the Law Series, July 2015, (‘Stage 1’). See discussion in section 7.3.2.1.3 of Stage 1, pp 212–215.

For Stage 1, see also, Francesco de Zwart, “Enhancing firm sustainability through governance – Part 1: The challenge of corporate governance” (2018) 33(2) Aust Jnl of Corp Law 144 and Francesco de Zwart, “Enhancing firm sustainability through governance – Part 2: The framework of the relational corporate governance approach” (2019) 34(1) Aust Jnl of Corp Law 27.

See discussion in section 7.3.2.1.3 of Stage 1, ibid, pp 212–215.

Grant Kirkpatrick, The Corporate Governance Lessons from the Financial Crisis, Report of the OECD Steering Group on Corporate Governance, 11 February 2009, Financial Market Trends, Vol 2009/1, ISSN 1995–2864, accessed 27 March 2017 at http://search.oecd.org/finance/financial-markets/42229620.pdf, (‘OECD Kirkpatrick Report 2009’), 19–20.

Brian R Cheffins, “Did Corporate Governance ‘Fail’ During the 2008 Stock Market Meltdown? The Case of the S&P 500” ECGI – Law Working Paper No. 124/2009, (1 May 2009), accessed 13 June 2017 at SSRN: http://ssrn.com/abstract=1396126, 25.

Ibid (footnotes omitted).

Klaus J Hopt, Better Governance of Financial Institutions, “Corporate Governance of Banks and Other Financial Institutions After the Financial Crisis”, (2013) 13(2) Journal of Corporate Law Studies 219–253 (Part B); “Corporate Governance of Banks after the Financial Crisis”, in E Wymeersch, K J Hopt and G Ferrarini, eds., Financial Regulation and Supervision, A post-crisis analysis, Oxford University Press 2012, pp. 337–367 (Part A); ECGI – Law Working Paper No. 207, (1 April 2013), accessed 14 June 2017 at SSRN: http://ssrn.com/abstract=2212198, 12 (footnotes omitted).

Ibid, 30–31.

David Walker, A review of corporate governance in UK Banks and other financial industry entities, Final recommendations, 26 November 2009, The Walker Review secretariat, accessed 14 March 2017 at http://www.http://webarchive.nationalarchives.gov.uk/+/http:/www.hm-treasury.gov.uk/d/walker_review_261109.pdf (‘Walker Review 2009’), Para 2.9, p 36.

Ibid, Para 2.10, p 36.

Ibid, Para 2.11, p 36

Ibid, Para 2.12, p 37.

The Bank for International Settlements, The Basel Committee on Banking Supervision, Guidelines, Corporate Governance Principles for Banks, July 2015, accessed 21 March 2017 at http://www.bis.org/bcbs/publ/d328.htm, (‘BCBS Guidelines 2015’), Para 48, p 13.

Ibid, Para 49, p 13.

Ibid. Para 51, p 13.

OECD Kirkpatrick Report 2009, above n 3, 22 (footnotes omitted).

Walker Review 2009, above n 8, Para 3.7, p 43.

See Table 6.6, UK National Corporate Governance Codes, Item 8, Enforcement/Disclosure of non-compliance with best practice, Stage 1, above n 1, p 175.

Walker Review 2009, above n 8, Para 3.8, p 44.

Ibid, Para 3.10, p 44.

Ibid, Para 3.12, p 45.

Ibid, Para 3.13, p 45.

Ibid.

Ibid, Para 3.14, p 45. The Board Risk Committee (BRC) is discussed in Chaps. 43 and 44 below.

Ibid.

Ibid, Para 3.19, p 47.

Ibid, Para 3.19, pp 47–48.

See discussion in sections 8.2.3–8.2.3.1 of Stage 1, above n 1, pp 229–232.

Walker Review 2009, above n 8, Paras 3.21–3.22.

European Commission, Green Paper, The EU Corporate Governance Framework, COM (2011) 164 final, Brussels, 5 April 2011, accessed 1 May 2017 at ec.europa.eu/internal_market/company/docs/modern/com2011-164_en.pdf, (‘EC Second Green Paper 2011’), section 1.2, p 8.

Ibid, Recommendation 3, Para 3.23, p 49.

OECD Directorate for Financial and Enterprise Affairs, OECD Steering Group on Corporate Governance, Corporate Governance and the Financial Crisis, Conclusions and emerging good practices to enhance implementation of the Principles, 24 February 2010, accessed 11 May 2017 at www.oecd.org/corporate/ca/corporategovernanceprinciples/44679170.pdf, (‘OECD 2010 Conclusions and Practices’), Para 59, p 21.

See discussion in section 8.4.3 of Stage 1, above n 1, pp 242–244.

Ibid.

See discussion in section 7.3.2.1.3 of Stage 1, above n 1, pp 212–215.

See discussion in sections 7.3.2.1.1–7.3.2.1.2 of Stage 1, above n 1, pp 208–212.

See discussion in sections 8.2.3–8.2.3.1 of Stage 1, above n 1, pp 229–232.

See discussion in section 9.2.1 of Stage 1, above n 1, pp 267–273.

Walker Review 2009, above n 8, Recommendation 1, Para 3.16, p 46.

Ibid, Para 3.16, p 46.

Ibid, Para 3.18, p 47.

BCBS Guidelines 2015, above n 12, Para 55, p 14.

Walker Review 2009, above n 8, Para 4.28, p 62. See also Recommendation 11, p 63.

Ibid, Para 4.28, p 62.

Ibid, Para 4.27, p 62

Ibid, Recommendation 11, Para 4.29, p 63.

Title: Financial and Bank-Specific Expertise
Author: Francesco de Zwart
Publisher: Springer Nature Singapore
Book: The Key Code and Advanced Handbook for the Governance and Supervision of Banks in Australia
Print ISBN: 978-981-16-1709-6

Electronic ISBN: 978-981-16-1710-2

Copyright Year: 2022
DOI: https://doi.org/10.1007/978-981-16-1710-2_33

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