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Commercial Bank Governance

Charles Goodhart, Emeritus Professor Banking and Finance, The London School of Economics and Political Science
Ideas Fair

 

Charles Goodhart
As the equity buffer of commercial banks declines towards the level where they may become insolvent, more of the resulting loss is, in future, going to fall on bond holders, particularly as unsecured bonds become bail-inable, and banks issue Cocos. Effectively these creditors are therefore increasingly becoming in the same position as equity holders. The suggestion, therefore, is that, as the capital adequacy ratio becomes weaker, so these creditors have the right for increasing representation onto both the overall Board, and the Remuneration Committee of commercial banks.

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