This chapter discusses bank structural reform. Most structural reform initiatives that have been undertaken since 2008 were aimed at reversing the effects of the repeal of the Glass–Steagall Act in the late 1990s and of the EU legislation that promoted universal banking. The chapter first considers the financial stability concerns and the mechanics of contemporary structural reform legislation in the USA, the UK, and the EU, and the actual legal framework underpinning these reforms. It then covers the regulation of bank involvement in derivatives markets. Today, derivatives regulation is a clear part of macroprudential regulation to the extent that centralized clearing and settlement and increased transparency battle opacity and interconnectedness and limit systemic risk. The remainder of the chapter covers deposit insurance, bank corporate governance, risk control, and executive remuneration.
Chapter
3. Prudential Regulation II: Structural Reform, Deposit Insurance, Corporate Governance
Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare
Chapter
12. Regulating the governance, structures, and incentives at banks
Iris Chiu and Joanna Wilson
This chapter assesses how regulation addresses sub-optimal internal organisation and governance at banks in order to change behaviour. The Basel Committee defines the role of internal control at banks to be for three purposes: to assist in achieving profitability and performance, to ensure the reliability and integrity of financial information relating to the bank, and to assist in external compliance with regulations. Meanwhile, corporate governance may be defined as ‘a system by which companies are directed or controlled’. As a framework for determining exercise of power, decision-making, and accountability, corporate governance is important in the shaping of an overall organisational culture. The chapter also considers the regulation of bankersʼ remuneration. Although such regulation affects bankers individually, there are aspects of ‘collective’ policy in remuneration regulation that seek to control organisational freedom in giving rewards, as well as aspects that affect individual incentives.