Rethinking banking prudential regulation : why corporate governance rules matter

In this article, I argue that corporate governance rules and norms are an
essential determinant of the effectiveness of banking regulation. It follows that the existence of a corporate governance regime that can be complementary rather than antagonistic to regulatory objectives is indispensable for the success of external regulation. I show that the current corporate governance model applicable to banks, which is fundamentally the same as that applicable to generic companies—despite the recent Walker Review—is not fine-tuned to work as a complement to banking regulation but rather undermines the latter’s practical effectiveness. An overall rethink of corporate governance in the case of banks is thus necessary, as part of a broader restructuring of the banking industry in response to the recent crisis.