The Appraisal of Corporate Governance Significance in Banking Sector

Year 2006-2007 were a prosper moment for banking industry. Employees, Employers, shareholders; all levels of managements were benefited from this. Actually I was thinking that the topic of corporate governance can be broadly analysed and used as the outlook is viewed from variety of scenes. But as I went through I found out that there was such difference and importance for banking sector in the moment of their opulence those years. Before I continue, what does corporate governance mean?

Many sources clarified that corporate governance is basically a participative actions by all members of organisation that must be involved in the firm to structure, direct, control and follow what are required to achieve its corporate objectives. That is why this system needs to be well developed in organization, specifically saying, in banking industry because this topic will analyse this further.

You can see the evidence when banking sector had high profit before tax (PBT) in 2006-2007, however what has happened to the next year? Success ‘in a flash’ became evil failure. A lot of banks in the world shut down their operations due to the lack of resources to preserve in 2008.  Some of them are Sanderson State Bank in Texas, Alpha Bank and Trust in Florida and even dozens of huge banks, HSBC and Lloyds Banking Group’s branches have closed.

On the other hand lately, Bankrate (2013) indicates that there were similar cases as Frontier Bank, Covenant Bank, 1^st Regents Bank and Westside Community Bank disappeared. I am aware that these are the evidences of ineffective banking corporate governance that reflected to the absence of agency model, transparency, risk management and responsibility towards the existing interests which are far more complicated than other business industries.

The challenges for outsiders are dense as they can’t actually see the real point inside the bank, likewise one example from Gregory Bell who used to work in Frontier Bank before it closed down. I think that as he did the bank fraud and money laundering, it opposed the bank to the 4 aspects mentioned in above. Risk management in there was not properly implemented, whilst the CEO of the bank hided the vital transactions of $20 million loans and attempted to illegally take $160,000 from it, which of course he did not accountable for the bank’s ‘going concern’ and definitely not into the interest of shareholders value (agency problem).

“Those responsible for bank failures were also ultimately responsible for the weakening of our economy,”- John Walsh, the USA’s counsel. If one bank affect this much how about if the rest do the same?

Considering this implication, the meaning of banking corporate governance should be working really hard because those results was affected upon the inappropriate coordination of BCG and thus may again, lead to the banking as well as global financial recession like that time. The remaining banks consequently have to make sure that in order to avoid this kind of worst disease, strategic decisions to make solid construction of relationship among owners or stockholders and stakeholders should be developed and carried out. Some of the schemes could be: one, the more practices from the top level of management towards the risks studies that will enable bank management to avoid immoral actions and quickly tackle the issue with backup strategies; two, adequate control system that get the most out of particular leverage; and three, provide adequate and firmed corporate structure along with its parameter so that word of power will never be misinterpreted.

So basically, enabling users’ right of entry to a complete information resource is strongly recommended in banking system because it may test professionals towards the key component of banking accountability and responsibility as well. However risks that may appear should be well-managed so that there is security to the information itself and it should be ensured that the security is met. Therefore, I believe that it will shift the access decisions in the course of the banking industry that can contribute to the sustainability of the banks, mainly the economy as the whole.