Answer To: CORPORATE GOVERNANCE INDIVIDUAL RESEARCH ANALYSIS AND REPORT. With reference to theory and practice...
David answered on Dec 24 2019
Corporate Governance: The Case of Banking Sector
About Banking Sector
To start with, the banking industry, being an important economic indicator, reflects the macro-economic factors. The banking sector has its foundations during the 18th century and also, has had a diverse evolutionary experience since that time (Macey and O’Hara, 2003). Moreover, the initial banking institutions were chiefly traders’ banks involved just in financing practices. Banking sector within the pre-independence period developed with Presidency Banks that were changed into the Imperial Banks. The beginning days of the sector witnessed a majority private ownership along with an extremely unstable work atmosphere. The role played by the banking sector is quite vital as one among the prominent important service segment (Caprio and Levine, 2002). The noteworthy role of banking sector is necessary for augmenting social economic growth. The industry during latest times has acknowledged the significance of private as well as foreign players within a competitive situation and has shifted towards higher liberalization.
Moreover, from traditional banking procedures during the British Rule towards reforms period, from nationalization towards privatization and towards the current trend of rising number of overseas banks, banking segment has gone through important change (Kirkpatrick, 2009). This is necessary for the economy, struggling for an accelerating sustainable as well as all-encompassing growth during the short and long-term, for having a growing and healthy banking system (Macey and O’Hara, 2003). The evolving competition has created new expectations from the new and existing customers. There exists an urgent need for introducing new products and services. Present products and services must be made available in a cost-effective and innovative manner through taking complete benefit of emerging techniques (Kohli, 2003). Further, taking the above discussion into consideration this particular paper attempts to throw light upon prevalent corporate governance issue i.e. culture within the Banking sector.
Corporate Governance: The Case of Banking Sector
One of the prevalent corporate governance issues prevalent in banking is associated with culture. Culture could be seen as being a highly complex concern since it takes in attitudes and behaviours. Nevertheless, efforts should be considered by banking institutes and the supervisors for understanding an institution’s culture and the way it impacts soundness and safety (Mridushi, 2011). While several descriptions of culture are present, supervisors are concentrating upon the institution’s standards, approaches, and behaviours associated with risk awareness, risk management or risk taking or the risk culture of the institution (Kirkpatrick, 2009). The concern of corporate culture within banking industry has surfaced during latest discussions like an area of pivotal importance for dealing with two issues i.e. restoring public faith within the banking industry and improving financial constancy (Caprio and Levine, 2002).
With over 100 billion dollars in fines levied upon the leading banking institutions ever since the time of the financial crisis, there is at present a rising notion that principled gaps in banking aren’t only the result of some “bad apples” like rogue traders—nevertheless instead a reflection of systematic faults (Mridushi, 2011). The absence of trust in banking stimulated through these distrust might encourage more invasive policies that could trim down the risk but might also limit lending (Macey and O’Hara, 2003). Moreover, provided how vital banking institutions are for economic development and their complementarity with financial marketplaces for directing capital to investors from, such concern is of wide economic attention (Caprio and Levine, 2002). Emphasis upon compensation is an important foremost step. Nevertheless, as vital as pay is for directing staff behaviour, it is however one part of the puzzle and high dependence upon compensation might essentially distract focus from other significant factors of the decisions made by the banks.
Moving ahead, organizational culture within banking industry is a crucially significant aspect in producing positive observable upshots in banks. Culture not just decides the efficiency of compensation in persuading staff behaviour, nevertheless it could also persuade staff members to function in a way consistent with the specified organizational values, mainly at the time when attaining this upshot through formal agreements might be either expensive— owing to bargaining, imperfect state observability and asymmetric information —or infeasible (Mridushi, 2011). Moreover, cultural difference implies that the similar reward-based compensation initiative could result in diverse behavioural upshots in different banks. It is simple to view, nevertheless, why culture hasn’t been a chief fraction of banking policies.
Variables such as compensation and capital ratios are visible and tangible, thus it is quite simple to target them during regulations formulation. Culture, by contrast, is an unclear conception, which frequently implies distinct things to distinct individuals. For the reason that it is fuzzy, culture is likely to be ignored. Additionally, a huge body of research associated with capital Culture not just governs the effectiveness of compensation in impacting staff behavior, however it could also encourage staff members to operate in a way in line with the specified standards of the company, chiefly when accomplishing this output through formal...