November 20, 2014 / 1:17 PM / 3 years ago

UPDATE 1-BoE policymaker says banks' boards must take more responsibility

* Taylor says committees must be servants of the board

* Boards must fully grasp what's going on (Adds more detail)

By Huw Jones

LONDON, Nov 20 (Reuters) - 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, such as understanding the risks from complex financial derivatives, after the 2007-09 financial crisis highlighted major governance failures.

Martin Taylor, a member of the BoE's Financial Policy Committee (FPC), 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," Taylor told an investment 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, Taylor, a former chief executive of Barclays bank, said.

Unless the board understands all the different activities of the bank, then it should either acquire this understanding quickly or "reduce the breadth of its ambitions".

The FPC has powers to direct banks to make changes in capital levels and sets the overall tone for supervision by the BoE's Prudential Regulation Authority arm.

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.

"Every one of these considerations is too big to delegate to board committees," said Taylor.

"They are quintessentially matters for the whole board, and a board that applied itself to them all properly would not have to worry about spending its next awayday in Pentonville (prison)," he added.

Committees need to be "obedient servants" of the board, not its masters. (Editing by Steve Slater and Susan Fenton)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below