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BoE policymaker says boards of banks must take more responsibility
[LONDON] Bank boards must have a collective understanding of how much capital the bank needs and the way staff are paid rather than delegate all key decisions to committees, a Bank of England policymaker said on Thursday.
Board members were criticised for not fully grasping their job after the 2007-09 financial crisis highlighted major governance failures.
Martin Taylor, a member of the BoE's Financial Policy Committee, said that in response to such failures in the past and to operate more efficiently, boards have increasingly delegated important decisions on risk, remuneration, audit and capital allocation to committees.
"I believe this efficiency has been bought at a high price in reduced board cohesion," Mr Taylor told an Oliver Wyman conference in London.
"It has got harder - perhaps because some organisations are ungovernably large - for boards to see any sort of big picture. Unable to encompass the blurred outlines of a sometimes ugly reality, individuals take refuge in trivial detail." A board must have "collective understanding" of and take responsibility for models used by the bank to determine how much capital they hold, Mr Taylor said.
Boards should also understand the incentives that underlie remuneration systems and understand all the different activities in which the lender is engaged in, he added.
The FPC has direct powers over banks and sets the tone for supervision by the BoE's Prudential Regulation Authority arm.