The turmoil that struck financial institutions in 2007 has, by the end of 2011, significantly deteriorated the fundamentals of the global economy, eroding trust in sustainability of the markets, solvency of banks and even the credibility of sovereign states and monetary unions. Whether this is the most serious financial crisis since the Great Depression only history will tell, but it is clear by now that the damage to the global economy has been extraordinary. This chapter looks into some of the corporate governance lessons that could prevent this from happening again and presents the main findings and conclusions of the OECD Corporate Governance Committee as reflected in several OECD publications as well as in G.Kirkpatrick (2010).Corporate governance rules and practices of many of the financial institutions that collapsed have often been blamed to be partly responsible for the crisis. The failures of risk management systems and incentive schemes that encouraged and rewarded high levels of risk taking are key factors in this context. Since reviewing and guiding risk policy is a key function of the board, these deficiencies point to ineffective board oversight. And since boards are accountable to shareholders, they also have been put under the spotlight, as many of them seemed to have no interest in expressing their views on the functioning of companies as long as returns were within targets.Corporate governance failures are surely not the cause of the crisis, but they did not prevent and may have even facilitated some of the risky and misguided corporate practices that had such severe effects once the downturn started. Importantly, much of what we have learnt from the demise of some of these financial institutions can serve as an important lesson for non-financial corporations in general. Some of the key lessons from the corporate governance perspective are described in this article.This paper is structured as follows. In the first section we describe the macro-economic as well as the corporate governance dimension of the financial crisis, particularly the way remuneration practices, risk management procedures, limited board oversight as well as shareholder passivism contributed to the poor performance of some major banks. The second section explains how existing corporate governance principles and national corporate governance codes have been re-evaluated against this background, and some of the recent developments are presented. We finish offering some general conclusions.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2393978_code1598012.pdf?abstractid=2393978&mirid=1&type=2

Corporate Governance Lessons from the Financial Crisis

This Paper presents a dynamic model of imperfect competition in banking where banks can invest in a prudent or a gambling asset. We show that if intermediation margins are small, the banks' franchise values will be small, and in the absence of regulation only a gambling equilibrium will exist. In this case, either flat-rate capital requirements or binding deposit rate ceilings can ensure the existence of a prudent equilibrium, although both have a negative impact on deposit rates. Such impact does not obtain with either risk-based capital requirements or non-binding deposit rate ceilings, but only the former are always effective in controlling risk-shifting incentives.

Capital Requirements, Market Power and Risk-Taking in Banking

https://www.bis.org/bcbs/events/wkshop0303/p10nierbaum.pdf

Market discipline, disclosure and moral hazard in banking

This report analyses the impact of failures and weaknesses in corporate governance on the financial crisis, including risk management systems and executive salaries. It concludes that the financial crisis can be to an important extent attributed to failures and weaknesses in corporate governance arrangements which did not serve their purpose to safeguard against excessive risk taking in a number of financial services companies.Accounting standards and regulatory requirements have also proved insufficient in some areas. Last but not least, remuneration systems have in a number of cases not been closely related to the strategy and risk appetite of the company and its longer term interests. The article also suggests that the importance of qualified board oversight and robust risk management is not limited to financial institutions. The remuneration of boards and senior management also remains a highly controversial issue in many OECD countries. The current turmoil suggests a need for the OECD to re-examine the adequacy of its corporate governance principles in these key areas.

/pdf/the-corporate-governance-lessons-from-the-financial-crisis-p0td6q6a3h.pdf

The corporate governance lessons from the financial crisis

The paper provides a comprehensive review of the recent development of revenue management in different industries. We discuss research on different revenue management strategies including pricing, auctions, capacity control, overbooking and forecasting. Related issues such as economic concerns, customer perception, competition and consolidation, implementation, performance evaluation, and common techniques and approaches used for solving revenue management problems are also discussed. Finally, we give our suggestion on some important areas that warrant further research.

An overview of research on revenue management: current issues and future research

This study uses unit root and cointegration tests to examine the relationships among the stock markets in Hong Kong, South Korea, Singapore, Taiwan, Japan, and the United States. All the stock prices are analyzed both individually and collectively to test for international market efficiency. Unit roots in stock prices are found. Pairwise and higher-order cointegration tests indicate that there is no evidence of cointegration among the stock prices. The findings suggest that the stock prices in major Asian markets and the United States are weak-form efficient individually and collectively in the long run. It also implies that international diversification among the markets is effective.

An Empirical Analysis of Stock Prices in Major Asian Markets and the United States

This study examines the relationships among stock prices in eighteen national stock markets by using unit root and cointegration tests for the period 1961--92 All the markets were analyzed individually and collectively in regions to test for market efficiency The results from unit root tests suggest that the world equity markets are weak-form efficient The cointegration test results show that there are only a small number of significant cointegrating vectors over the last three decades However, the number of significant cointegrating vectors increases after the October 1987 stock market crash, a result that is consistent with the contagion effect

International Stock Market Efficiency and Integration: A Study of Eighteen Nations

1. Introduction to the Basel Capital Accords 2. The New Basel Capital Accord: Is 8% Adequate? 3. Why and How Banks Fail- Would 8% Capital Make a Difference? 4. Basel II: The Roar That Moused 5. Basel II Creates an Uneven Playing Field 6. Market Discipline: Is it Fact of Fiction? 7. The New Basel Capital Accord and Questions for Research 8. The New Basel Accord and Advanced IRB Approaches: Is There a Case for Capital Incentives? 9. Pro-cyclicality, Banks' Reporting Discretion, and "Safety in Similarity" 10. The Inadequacy of Capital Adequacy Policies for Financial Institution Regulation 11. Bank Lending and the Effectiveness of Monetary Policy Under a Revised Basel Accord 12. Is the New Basel Accord Incentive Compatible? 13. Optionality and Basel II 14. The Impact of the Basel II Capital Accord on Australian Banks 15. Basel Skepticism: From a Hungarian Perspective 16. The New Basel Capital Accord and Its Impact on Japanese Banking: A Qualitative Analysis About the Authors Index

The New Basel Capital Accord

1 Functions and Forms of Banking 2 The Bank Regulatory Environment 3 Evaluating Bank Performance 4 Bank Valuation 5 An Overview of Asset/Liability Management (ALM) 6 Techniques of Asset/Liability Management: Futures, Options, and Swaps 7 Commercial and Industrial Lending 7A Financial Analysis 8 Real Estate and Consumer Lending 9 Liquidity Management 10 Investment Management 11 Bank Capital 12 Managing Liabilities 13 Electronic Banking 14 Off-Balance Sheet Activities 15 Financial Services 16 Global Financial Services

Commercial Banking: The Management of Risk

In recent years more takeovers have occurred in banking than in any other industry (Mergers & Acquisitions 1987). This activity resulted partly from liberalized laws affecting branch and interstate banking and partly from the number of failed banks. t As more states liberalize their laws regarding banking structure and regional pacts, takeovers of bank and nonbank financial institutions are expected to increase.2 Thus, understanding the determinants of the prices paid in bank takeovers is important to the large portion of the banking industry that is either a potential target or potential bidder, or both. Greater knowledge of the determinants of purchase prices can also help shed light on commercial bank operations.3 Several recent studies examine the determinants of bank merger pricing. These studies tend to focus on the characteristics of the target, and to downplay the characteristics of the acquiror. These studies also tend to use a single proxy for each theoretical effect, for example, one measure of the target's earnings. The individual studies are reviewed below, but in general they find a positive relationship between purchase price and some measure of the target's potential growth and a negative relationship between purchase price and some measure of the ratio of the target's total assets to the acquiror's total assets. Other variables, including those for the target's profitability, are sometimes but not always statistically significant. One difference between this study and prior studies is that this study places greater emphasis on acquiror-related characteristics. Acquirors tend to pay a premium for a controlling interest in banks. This premium suggests that the firm

Benton E. Gup

Papers

An Empirical Analysis of Stock Prices in Major Asian Markets and the United States

International Stock Market Efficiency and Integration: A Study of Eighteen Nations

The New Basel Capital Accord

Commercial Banking: The Management of Risk

Financial Determinants of Bank Takeovers: Note