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Comment: by Terry Murden

Bank failings are a lesson on boardroom behaviour

TerryThe alarming account of the Bank of England’s poor response to the financial crisis is another story of a supervisory body not doing what it is paid to do.

The court of the Bank, which is supposed to keep an eye on its operations and its governor in particular, failed to hold it to account at the most vital time for the financial system.

Andrew Tyrie, chair of the powerful Treasury Select Committee – and a long time critic of the Bank – has gone so far as to say the court may even have made matters worse by shifting its focus away from supervision.

Minutes of the meetings between 2007-09 reveal how it failed to stop the collapse of Northern Rock and the events that followed. Mervyn King, governor at the time, has already admitted in May 2012 that the Bank failed to identify the risks facing the banks.

The tripartite system of regulation involving the Bank, the Treasury and the Financial Services Authority, was subsequently shown to have failed and was disbanded, but the issues of regulation and supervision continue to plague many organisations.

It was, after all, a failure of non-executives of the banks themselves that contributed to their downfall. At Royal Bank of Scotland, Fred Goodwin took all the bullets, but those around him abdicated their responsibilities to check, advise and warn of the dangers facing the bank.

The auditors, shareholders and highly-paid advisers who were happy to stick their noses in the trough, quickly disappeared when the balloon went up.

All the above are highly-rewarded, earning substantial sums for their part-time commitments, but too many seem to be more concerned about the quality of the biscuits at their occasional meetings than focusing on the job in hand. Too often we hear of crises being a result of these supervisors and advisers being asleep at the wheel.

Full supervisory responsibility of the banks has now been restored to the Bank of England but Mr Tyrie wants more changes to how it supervises itself, claiming that at the time of the crisis it did not have a board worthy of the name.

At least we are in a position of knowing more about its failings thanks to the greater transparency introduced by the current governor, Mark Carney.

But a reappraisal of the functioning of all boards and committees is something we need to consider. One source told me that he knew of one non-executive director of a Scottish plc who had not spoken at any meeting. And this in exchange for a monthly cheque amounting to tens of thousands of pounds. It’s not good enough.

 

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