Progression or regression: regulatory and governance challenges after the global financial crisis and Brexit editorial introduction
Editor Introduction
It was my pleasure to be the guest editor for the Journal of Financial Regulation and Compliance in its special report on corporate governance. Three of the articles were specifically focused on the banking sector, which continues to be at the forefront of concern by investors, regulators, shareholders and politicians. The images of too big to fail of 2007 bring concerns to all groups and questions continue to be unresolved on how to best proceed. What has become clear since 2007 is that we continue to live in a volatile–uncertain–complex–ambiguous world. As the world continues to reel from the COVID 19 virus and governments spend billions to cushion businesses and society in general, we face the stark reality of what could trigger a major recession/depression and the potential harm that could wreak on the banking sector. As governments spend hundreds of billions to cushion workers and businesses from the pandemic, the importance of good governance needs to be at the forefront. One day the world was worried about potential rising interest rates and the next interest rate is almost zero. Questions of governance and cross-border regulations add to the need to develop more rigorous governance structures that can work within the critical sector of banking. Even with increased government spending, pressure is on the banks to increase their risk portfolios to support businesses impacted by the virus. The three authors all wrote their articles prior to the pandemic but the messages on banking reform are more important than ever.
The banking sector is a complex global business. Author Jakob Schemmel in his article, “Regulating European financial markets between crisis and Brexit,” addresses the combined issue of institutional framework reforms and the challenges of doing this during a UK Brexit. Schemmel provides an excellent review and summary of the complex world of the newly restructured European Supervisory Agencies and how the amendments to their powers can and will impact the banking sector including ongoing hurtles that need to be addressed. Christiane Hellstern’s paper “Structural banking reforms and their implications for banks’ corporate governance” looks at the practical implications that new regulations and structural reforms will have on both the industry and the boards that govern them. In her paper, Hellstern draws an intriguing link back to the regulatory separation of 1933 after the great depression. The article clearly maps out the current challenges faced by both the organizations and boards as they try and separate out complex business units. How reforms are done will impact how both boards and companies are managed and potentially who is and should be on the board. Richard Ridyard in his article, “Carrots and sticks in bank governance: time for a bigger stick?,” goes beyond the regulatory issues and institutional reform and specifically addresses the role of senior management and board and shareholder accountability. Ridyard puts forward that real reform requires a change of culture and accountability that can only be addressed by looking at those directly responsible for providing the governance of the sector itself.
All three article are excellent reads and real page-turners. For those new to the banking sector, an excellent introduction into the complexity of the industry and for those embedded within the sector, they provide excellent material to reflect on, as the industry continues to seek the proper mix of regulatory and governance measures.
