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Risk monitoring tools in bank regulation and supervision – developments since the collapse of Barings Plc

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  • Ojo, Marianne

Abstract

This paper consolidates the work of its predecessor, “International Framework for Liquidity Risk Measurement, Standards and Monitoring: Corporate Governance and Internal Controls”, by considering monitoring tools which are considered to be essential if risks,(and in particular liquidity risks which are attributed to a bank), are to be managed and measured effectively by its management. It also considers developments which have triggered the need for particular monitoring tools – not only in relation to liquidity risks, but also to the rise of conglomerates and consolidated undertakings. It highlights weaknesses in financial supervision – weaknesses which were revealed following the collapses of Barings and Lehman Brothers. As well as attempting to draw comparisons between the recommendations which were made by the Board of Banking Supervision (BoBS) following Barings’ collapse, and the application issues raised by the Basel Committee in its 2009 Consultative Document, International Framework for Liquidity Risk Measurement, Standards and Monitoring, it highlights the links and relevance between both recommendations. In drawing attention to the significance of corporate governance, audit committees, and supervisory boards, the importance of effective communication between management at all levels, to ensure transmission and communication of timely, accurate and complete information, is also highlighted. Through a comparative analysis of two contrasting corporate governance systems, namely, Germany and the UK, it analyses and evaluates how the design of corporate governance systems could influence transparency, disclosure, as well as higher levels of monitoring and accountability. Whilst highlighting the need for, and the growing importance of formal risk assessment models, the paper also emphasises the dangers inherent in formalism – as illustrated by a rules based approach to regulation. It will however, demonstrate that detailed rules could still operate within a system of principles based regulation – whilst enabling a consideration of the substance of the transactions which are involved. In addressing the issues raised by principles based regulation, the extent to which such issues can be resolved, to a large extent, depends on adequate compliance with Basel Core Principle 17 (for effective banking supervision) – and particularly on the implementation, design and compliance with “clear arrangements for delegating authority and responsibility.”

Suggested Citation

  • Ojo, Marianne, 2010. "Risk monitoring tools in bank regulation and supervision – developments since the collapse of Barings Plc," MPRA Paper 22125, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:22125
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    File URL: https://mpra.ub.uni-muenchen.de/22125/1/MPRA_paper_22125.pdf
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    References listed on IDEAS

    as
    1. Jeremy Edwards & Marcus Nibler, 2000. "Corporate governance in Germany: the role of banks and ownership concentration," Economic Policy, CEPR;CES;MSH, vol. 15(31), pages 237-267, October.
    2. Schmidt, Reinhard H., 2003. "Corporate Governance in Germany: An Economic Perspective," CFS Working Paper Series 2003/36, Center for Financial Studies (CFS).
    3. Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    liquidity; principles based regulation; risks; corporate governance; audit; creative compliance;

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises

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