Enhancing corporate governance for banking organisations

Introduction

Given the important financial intermediation role of banks in an economy, their high degree of sensitivity to potential difficulties arising from ineffective corporate governance and the need to safeguard depositors' funds, corporate governance for banking organisations is of great importance to the international financial system and merits targeted supervisory guidance. The Basel Committee on Banking Supervision (the Committee) published guidance in 1999 to assist banking supervisors in promoting the adoption of sound corporate governance practices by banking organisations in their countries. This guidance drew from principles of corporate governance that were published earlier that year by the Organisation for Economic Co-operation and Development (OECD) with the purpose of assisting governments in their efforts to evaluate and improve their frameworks for corporate governance and to provide guidance for financial market regulators and participants in financial markets.

Since the publication of those documents, issues related to corporate governance have continued to attract considerable national and international attention in light of a number of high-profile breakdowns in corporate governance. In response to requests to assess the OECD principles in view of such developments, the OECD published revised corporate governance principles in 2004. Recognising that revised guidance could also assist banking organisations and their supervisors in the implementation and enforcement of sound corporate governance, and in order to offer practical guidance that is relevant to the unique characteristics of banking organisations, the Committee is publishing this revision to its 1999 guidance. A revised version of the 1999 paper was released for public consultation in July 2005. This paper, which broadly retains the structure of the 1999 paper, takes into account comments received during the consultative period. This paper also presents some considerations for corporate governance related to the activities of banking organisations that are conducted through structures that may lack transparency, or in jurisdictions that pose impediments to information flows.

The Basel Committee is issuing this paper to supervisory authorities and banking organisations worldwide to help ensure the adoption and implementation of sound corporate governance practices by banking organisations. This guidance is not intended to establish a new regulatory framework layered on top of existing national legislation, regulation or codes, but is rather intended to assist banking organisations in enhancing their corporate governance frameworks, and to assist supervisors in assessing the quality of those frameworks. The implementation of the principles set forth in this paper should be proportionate to the size, complexity, structure, economic significance and risk profile of the bank and the group (if any) to which it belongs. The application of corporate governance standards in any jurisdiction will depend on relevant laws, regulations, codes and supervisory expectations.