Tuesday, 25 October 2011

UK: bank governance - 'control rights (and wrongs)'

The Wincott Annual Memorial Lecture was delivered yesterday in Westminster by Andrew Haldane, a member of the Bank of England's Financial Policy Committee and executive director for financial stability. Mr Haldane's speech was titled 'Control rights (and wrongs)' and in it he identified a governance fault-line regarding banks: control rights are exercised by shareholders although equity represents a small fraction of banks' balance sheets, and shareholders have risk-taking incentives which are out of line with other bank stakeholders. He argued that fundamental reform was needed to tackle the deep rooted incentive problems in banking. In this regard he made several suggestions, including extending voting rights beyond the shareholders; the use of performance metrics based on return on assets (rather than equity); and measures to address the tax advantage of debt.

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