MANAGEMENT

Examine the importance of corporate governance on bank risk management

Examine the importance of corporate governance on bank risk management

What is Good Corporate Governance?

Corporate governance is defined as the set of rules, policies and procedures used to control and direct the corporate organization in an equitable and responsible manner. The principles that govern it are: information transparency, equal treatment of shareholders and order. The importance of good corporate governance in banks can be summarized in the following points:

1.Corporate Governance is the system whereby the direction and supervision of operations of banks;

2. Good corporate governance is a key element in improving economic efficiency and poor corporate governance on the contrary, and especially in the banks can affect the financial and economic stability. And the best proof of that is what happened in the Asian financial crisis (Hampel, 1998, pp. 49).

Key players in the governance of banks and banking risk management process

The Regulatory Authorities: Building a framework for corporate governance and risk management

The organizers of the banks have an active role in building a framework for the governance of banks and risk management of banks, where the concentrated efforts of regulators typically maintain public confidence in the banking sector and to create a market fair for financial institutions and bodies that provide financial services and aimed at regulatory bodies also to find free market to supervise banks and supervisory and professional positions as well as to create awareness among the public responsibility of managing the bank's risk management process.

In terms of financial risk management responsibility of the regulators concentrated on improving quality through licensing requirements and minimum capital adequacy rules and strict capital and tightening credit standards and responsibilities and provides guidelines on the management of risks and related policies.

The supervisory authorities: Monitoring risk management

Transactions that banks that are large and very complex and difficult to track the assessment and where supervisors depends largely on the internal management control systems. And may cause the entrance of the traditional organization and supervision at times in causing distortions in the financial markets by providing negative incentives to evade the application of regulations, rather than encourage the adequacy of financial risk management. Since the late eighties there a growing realization that the old entrance to oversee the banks cannot withstand the challenges of the banking environment of contemporary and turbulent markets, and in some quarters that realization led to an intensive process of consultation between regulatory authorities and banks seeking to create a legal framework for shift to the entrance-oriented market and risk-based supervision of banks, and to establish such a framework should define the responsibilities of various parties in the risk management process clearly.

And so the task of supervising the banks can be considered as a monitor, evaluate and where necessary strengthen the risk management process performed by banks, and with, the supervisory authority is the only one of several parties to contribute to a stable banking system.

Shareholders: Set the appropriate policy makers

Shareholders play ...