Based on the headlines, it seems that boards of directors, management, and auditors desperately need a remedial course in Internal Controls 101. As corporations grow larger and more diverse, internal controls become more, not less, important to the ability of management and the board to monitor activity across the company. The basics of internal controls for directors and management are simple.
Some banks were facing direct exposures to “toxic” sub-prime assets; others needed liquidity to be able to honour committed credit lines to so-called conduits, bank-sponsored investment funds. These off-balance sheet entities, a part of the large shadow banking sector in the US, became unable to roll over short-term financing in the US asset-backed commercial paper market (ABCP) amid great uncertainty about asset valuations.