Bank Governance, Remuneration and Resolution

Colin Mayer

Proposals

- Corporate Governance

- Capital Requirements

- Resolution

- Structural Solutions

Corporate Governance

- Failure to monitor, measure, manage risks

- Recommendations regarding:

- Boards: appointment, diversity, commitment, independence

- Risk and Remuneration: control of risks, auditing, executive remuneration

- Shareholder Engagement: stewardship by shareholders

Micro-Governance as Source of Systemic Failure

- Potential systemic consequences arising from problems of:

- Identification

- Unintended consequences

- Homogeneity

- Relation of corporate governance and executive remuneration to bank performance and risk taking

- Should directors have fiduciary responsibility to creditors?

Capital Requirements

- Admati, De Marzo, Hellwig and Pfleiderer – low costs, high benefits of equity

- Miles – capital requirements double current proposals

- Debt overhang – withdrawal of lending

- Bail-ins and contingent debt contracts

Resolution

- Bail-outs – Iceland, Ireland and Lehman Brothers experiences

- Moral hazard

- Contrast with Swedish bank experience

- Lower cost forms of resolution

- FDIC – Bank of England accord

- Risk of absence of explicit guarantees

Structural Solutions

- Ring-fencing of retail versus investment banking or separation of trading from the rest

- Implications for social value of different parts of financial system and the functions that banks are supposed to perform

- Competition in banking and charter values

- Relevance of bank ownership

Issues for Discussion

- Are proposals for bank governance, boards, remuneration, engagement, fiduciary responsibility appropriate?

- Should capital requirements be raised and should greater use be made of bail-ins?

- Can bail-outs be effectively organized at low cost?

- Are proposed structural solutions appropriate, should competition be encouraged, and how relevant is bank ownership?