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6. Recommendations for Enhancing Bank Transparency
(f) Basic business, management and corporate governance information
- To accurately evaluate a bank's disclosures about its financial position and financial performance and its risks and risk management strategies, market participants and supervisors need fundamental information about the bank's business, management and corporate governance. Such information can help provide the appropriate perspective and context to understand a bank's activities. For example, management's discussion about the bank's position in the markets in which it competes, its strategy and its progress towards achieving its strategic objectives is important for assessing the bank's future prospects.
- The organisation of a bank, in terms of both its legal and management structure, provides information about an institution's key activities and its ability to respond to changes in the marketplace. Further, such information may provide an indication of the institution's efficiency and overall strength. Accordingly, it is appropriate to disclose information about the board structure (e.g., the size of the board, board committees, and membership), senior management structure (responsibilities, reporting lines), and the basic organisational structure (line of business structure, legal entity structure). In addition, information should be provided about the qualifications and experience of the board and senior executives. This information may be helpful in assessing how an institution may perform in times of stress or how it may react to changes in the economic or competitive environment.
- Information about the incentive structure within a bank, including its remuneration policies, such as the amount of executive compensation and the use of performance bonuses and stock options, helps evaluate the incentives management and staff have to take excessive risks. Useful information may include a summary discussion of the philosophy and policy for executive and staff compensation, the role of the board of directors in setting compensation, and compensation amounts.
- In addition, banks should provide information on the nature and extent of transactions with affiliates and related parties. Such information is useful in identifying relationships that may have a positive or negative impact on a bank's financial position and performance. Further, it can help assess its susceptibility to the effects of affiliates on the bank's financial performance (contagion risk).
- Finally, institutions should consider providing general information that would help market participants and supervisors gain a broad understanding of the institution's culture. As indicated previously, banks should be innovative in identifying the types of information they provide and the methods by which they provide such data.
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6. Recommendations for Enhancing Bank Transparency
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