Trends in Federal Reserve and Basel II A‐IRB Bank governance
| DOI | https://doi.org/10.1108/13581980710762264 |
| Published date | 31 July 2007 |
| Pages | 250-261 |
| Date | 31 July 2007 |
| Author | Elizabeth Webb |
| Subject Matter | Accounting & finance |
Trends in Federal Reserve and
Basel II A-IRB Bank governance
Elizabeth Webb
Federal Reserve Bank of Philadelphia, Philadelphia, Pennsylvania, USA
Abstract
Purpose – The purpose of this paper is to apply theoretical concepts of corporate and bank boards to
the Boards of Directors at Federal Reserve Banks and at US Basel II A-IRB adopters. The Basel II
Accord set to take effect in the USA in 2009 provides direction as to board oversight in Pillar 2. Since
the Federal Reserve is one agency responsible for this document, the paper proposes to investigate the
governance structure at US banks, presumably adopting (or opting in) the Basel II A-IRB framework.
Design/methodology/approach – The board structure at Federal Reserve District Banks as of
2006 is examined. Also analyzed are the board structure, executive compensation, and ownership
structure at the 22 banks identified as Basel II A-IRB adopters. These results are then compared with
current views and standards of “good governance” in the literature.
Findings – It was found that there is a fairly diverse representation on the board (in terms of
female directors), a large proportion of directors are CEOs (generally of other banks), and that boards
comprised a majority of outside directors. Several governance characteristics are contrary to “good
governance” characteristics described in the literature. Further, banks adopting A-IRB procedures in
Basel II may need to improve governance structures to be in compliance with Pillar 2 of Basel II.
Practical implications – The Federal Reserve System, in an effort to increase board oversight as
part of a risk management framework, should also consider its own board structure in light of current
research on private-sector boards. Both Federal Reserve District Boards and Basel II Boards should
work towards exemplary corporate governance in light of their place in the US banking system.
Originality/value – The paper investigates the governance structures of banks.
Keywords Boards of directors,Chief executives, Compensation,Banks
Paper type Research paper
1. Introduction
Boards of directors and governance structures in general have received increasing
attention in both the academic and financial media. However, little consideration has
been placed on the governance structures of regulatory agencies that oversee corporate
and financial institutions in the USA. In fact, these regulatory agencies, charged with
providing directives to constituent firms, are not monitored in terms of their own
governance policies and structures to the extent that they monitor others. It is the
classic question of “Who is monitoring the monitors?”
In this paper, I analyze Boards of Directors at the 12 district branches of the Federal
Reserve System as of January 1, 2006. I provide insight as to the director-election
process, director duties, and the structure of the Boards in the Federal Reserve System.
Further, I collect statistics on the boards including industry representatio n, diversity,
insider/outsider representation, and director roles outside of the FR board, similar to
studies on bank governance structures – firms that the FRS monitors. I find that
in general, FR District Boards are in line with current “best practices” in corporate
governance.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JFRC
15,3
250
Journal of Financial Regulation and
Compliance
Vol. 15 No. 3, 2007
pp. 250-261
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980710762264
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