Today, the Basel Committee on Banking Supervision issued a consultative document entitled "Principles for enhancing corporate governance," which incorporates lessons from the financial crisis in its recommendations for best practices for corporate governance in banking organizations. Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank, stated that “the crisis has highlighted the critical importance of sound corporate governance for banking organisations. Careful implementation of these principles by banks, along with rigorous supervisory review and follow-up, will enhance bank safety and soundness as well as the stability of the financial system.” The proposed principles address:

  • The role of the board, including its role in approving and overseeing the bank's risk strategy;
  • The board's qualifications, including ensuring that board members have the knowledge and experience relevant to each of the material financial activities of the bank to enable effective governance and oversight of the bank;
  • The importance of an independent risk management function, including a chief risk officer with authority, independence, resources and access to the board;
  • The need to identify and monitor risk on an ongoing firm-wide and individual entity basis, using risk management systems and internal controls "that are appropriate for the external risk landscape and the bank's risk profile"; and
  • Board oversight of the compensation system's design and operating, including "careful alignment of employeecompensation with prudent risk taking."

The Committee also notes the important role of bank regulators in guaranteeing good corporate governance. The Committee will receive comments on the consultative document until June 15, 2010.