The financial crisis highlighted that for many banks, governance had fallen short. Change was necessary. Hearing the call to action, bank directors, executives, and supervisors have begun a journey toward strengthened governance. Supervisors are pushing for deeper board engagement and working to understand governance effectiveness. Boards are engaging more on strategy, risk, capital and talent, and have improved their ability to oversee the overall control and risk environment. And management understands its duty to support board oversight.
Boards remain at the center of governance. Bank directors have a major role to play in helping their institutions navigate the challenging regulatory, political, and economic waters that lie ahead. Never passive observers, directors today are even more involved in overseeing and guiding management, contributing materially to the creation of trustworthy institutions that perform well over the long term.
Bank directors have proactively engaged key external stakeholders, notably regulators and long-term shareholders. Increasingly, this communication is two-way: directors listening and reacting to external views, while helping shape their constituents' expectations. All parties are working towards the common goal of a strong international economy bolstered by a thriving, well-functioning banking sector.
Strengthening board-supervisor relationships
Bank Governance Leadership Network participants have discussed increasingly "intensive" supervision for several years, including supervisors' increasing engagement with senior management and boards. Supervisors and directors are still learning how best to establish trust-based relationships that will allow for constructive, candid engagement. This ViewPoints outlines practical steps that can help cultivate these relationships and focus board-supervisor dialogue on core issues.
Increasing clarity in the global regulatory agenda: focusing on implementation and implications
At the fourth Bank Directors Summit, participants recognized the need to stop waiting for the pendulum to swing back and accepted some 'hard truths' about the regulatory environment banks will face in the next decade. This ViewPoints covers this new regulatory reality, including increasingly clarity that: global regulators are working towards minimum standards, not a level playing field; national approaches to regulation are challenging global banking operations; and regulators are intensifying supervision, particularly for banks designated systemically important.
Reforming bank culture: transforming values into action
Since 2009, Bank Governance Leadership Network (BGLN) participants have been discussing the need to rebuild their industry's reputation. Culture reform has moved up the political agenda and was a central topic at the fourth Bank Directors Summit. Bank leaders are beginning the journey of culture reform in earnest, including: identifying levers boards have in shaping it; rebalancing stakeholder interests, with customers coming first; and improving behavior monitoring to provide insight into bank culture.
Understanding and assessing governance effectiveness: a challenge for supervisors
Many supervisors have a stated goal of developing a better understanding of governance effectiveness within the institutions they supervise. ViewPoints outlines the challenges this presents, but also the steps that can assist supervisors in effectively fulfilling this objective, including developing a shared understanding of the role of the board; developing trusting relationships over time, via a mix of formal and informal interactions with directors; and ensuring supervisors are equipped for the task. Discussions highlighted broad agreement that regulators and supervisors are putting too much burden on directors, making it hard for them to focus on the truly important issues of strategy, risk, and talent.
Global banking adapts to adverse economics and restrictive regulations
Board members representing 18 global banking institutions, and guests representing the regulatory, CEO and central bank perspective, met for the third Bank Directors Summit in 2011. Discussion focused on regulatory reform and supervision, improving risk governance, profitably serving customers, and the broad implications for global banking.
Boards play a key role as “owners” of the their firm’s future
Bank directors discuss their four core, value-adding roles: constructing and honing the vision statement, selecting the strategy and the CEO, controlling the key resources management uses to execute the strategy, and ensuring compliance processes and controls are robust.
Strengthening the board-management dialogue on risk and strategy
Bank directors are actively engaging with management to develop bank-specific approaches to improve risk governance and the link to strategy based on answers to fundamental questions about their firms' long-term direction, appropriate risk capacity, and resiliency under stress.