The Federal Deposit Insurance Corporation (FDIC) has voted to strengthen the regulation of corporate governance and risk management for large banks.
Banks with over $10 billion in total consolidated assets will be required to implement more sophisticated and formal corporate governance and risk management structures and practices under the proposed rules.
The guidelines outline the obligations of the board of directors to ensure good corporate governance, including providing active oversight of management in their institution and adopting a code of ethics.
They also require the board to establish a committee structure, including a risk committee, and an effective risk management program to identify, measure, monitor and control risks.
The proposals also set out the general obligations of individual directors.
Martin J. Gruenberg, chairman of FDIC, said: “The experience of the three large [bank] failures this spring should focus our attention on the need for meaningful action to improve the corporate governance and risk management processes of large [banks] under the Federal Deposit Insurance Act.”
However, vice chairman Travis Hill disagreed that banks needed to focus on process-related governance in the wake of large bank collapses this year, arguing banks should focus more on core risks to safety and soundness.
Jonathan McKernan, director, agreed that the proposed rules could “undermine accountability for risk ownership”.
Hill said: “I am skeptical that many of the provisions should rise to the level of enforceable safety and soundness standards, and I think we should be mindful that one-size-fits-all “best practices” are rarely actually the best practices for the unique situation and circumstances of any particular institution.”