In part in reaction to the financial crisis, the Basel Committee on Banking Supervision today released a publication entitled “Principles for enhancing corporate governance". In the introduction to the principles, the committee emphasized the importance of corporate governance to both the public and the market due to the “important financial intermediation roles of banks in the economy.”

Building on guidance on the same topic propagated by it in 1999 and again in 2006, the 2010 principles focus on the following key areas of corporate governance:

  1. Board practices. Boards should maintain active responsibility for the operation of banks and provide effective oversight of senior management.
  2. Senior management. Senior management’s actions should be consistent with board policies.
  3. Risk management and internal controls. Banks should implement an autonomous risk management program, with adequate resources and independence from the board.
  4. Compensation. Banks should implement the Financial Stability Forum’s FSF Principles for Sound Compensation Practices and the Financial Stability Board’s related Implementation Standards , or similar practices and standards that have been adopted in such banks’ jurisdictions.
  5. Complex or opaque corporate structures. A bank’s board and senior management must be knowledgeable about such bank's corporate structure, and should take steps to streamline such structure to remove undue complexity.
  6. Disclosure and transparency. Governance of banks should be transparent to its shareholders, depositors and other stakeholders.

The 42-page principles provide clear and comprehensive guidance regarding corporate governance issues faced by banking organizations, replete with specific action item recommendations. The committee envisions that the 2010 principles may serve as guidance to banking regulators and to the governing bodies of banks.