Bank Governance, Remuneration and Resolution Colin Mayer

Proposals -Corporate Governance -Capital Requirements -Resolution -Structural Solutions

Corporate Governance -Failure to monitor, measure, manage risks -Recommendations regarding: -Boards: appointment, diversity, commitment, independence -Risk and Remuneration: control of risks, auditing, executive remuneration -Shareholder Engagement: stewardship by shareholders

Micro-Governance as Source of Systemic Failure -Potential systemic consequences arising from problems of: -Identification -Unintended consequences -Homogeneity -Relation of corporate governance and executive remuneration to bank performance and risk taking -Should directors have fiduciary responsibility to creditors?

Capital Requirements -Admati, De Marzo, Hellwig and Pfleiderer – low costs, high benefits of equity -Miles – capital requirements double current proposals -Debt overhang – withdrawal of lending -Bail-ins and contingent debt contracts

Resolution -Bail-outs – Iceland, Ireland and Lehman Brothers experiences -Moral hazard -Contrast with Swedish bank experience -Lower cost forms of resolution -FDIC – Bank of England accord -Risk of absence of explicit guarantees

Structural Solutions -Ring-fencing of retail versus investment banking or separation of trading from the rest -Implications for social value of different parts of financial system and the functions that banks are supposed to perform -Competition in banking and charter values -Relevance of bank ownership

Issues for Discussion -Are proposals for bank governance, boards, remuneration, engagement, fiduciary responsibility appropriate? -Should capital requirements be raised and should greater use be made of bail-ins? -Can bail-outs be effectively organized at low cost? -Are proposed structural solutions appropriate, should competition be encouraged, and how relevant is bank ownership?