Corporate Governance in the Banking and Finance Sector.

Abstract

The focus of this thesis is an examination of certain weaknesses in the corporate governance at UK and US banks which constituted an underlying cause of the crisis. It considers the regulatory responses to these identified weaknesses and assesses to what extent these have led to improvements in corporate governance at banks. This research is based on an examination of all the failures at UK and US banks during and after the crisis, and of its related responses. In addition to UK and US responses, several solutions to the weaknesses identified at UK and US banks are addressed through EU legislation. The conclusions are that board effectiveness was low due to a lack of knowledge and of challenging of senior management; there was a culture placing growth and profit over risk management; and remuneration was structured leading to unacceptable risk taking resulting in scandals. It is concluded that the mechanisms to limit the impact of a failure of a bank on its stakeholders were inadequate. A case study of the financial crisis in US during the 1990s is undertaken to consider whether the US regulatory response offers lessons to UK regulators and legislators. The finding is that analysis of regulation and corporate governance at banks is problematic. There were similarities between the two financial crises, the organisation and culture of the UK and US banks is so different that different regulatory responses follow.