BIS central bankers’ speeches  underpinned by a clear separation between board oversight and management. While this may appear to be a rudimentary feature of any governance arrangement, it may be challenging in organisations that are large and have complex or opaque reporting lines, resulting in boards and senior management that are too far removed from the issues on the ground. “Too big to manage” is a real concern. In their reflection of banking practices leading up to the crisis, the United Kingdom’s Parliamentary Commission on Banking Standards found that an “unclear, complex and confusing allocation of responsibilities” among senior management had posed challenges in identifying individuals who were responsible for poor decisions and more importantly, in holding them to account 7. This is an important lesson to keep in mind for Asia, as our financial institutions continue to significantly expand their operations across sectors and geographical boundaries. In ensuring the effectiveness of governance structures, none is more important than having competent and committed individuals at the helm of financial institutions. The members of the board of directors must have a sound understanding of the business, the risk profile of the financial institution, and the operating environment. The board must also be ready to challenge executive management and hold it to account. This demands a combination of experience, confidence and character – elements which were found lacking among financial institutions in the recent crisis.
Thomas Jordan: Structures of a new financial system Summary of a speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Volkshochschule Zürich, University of Zurich, Zurich, 15 April 2010. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Well-functioning financial systems are fundamental for long-term economic growth. They enable capital to be allocated efficiently and facilitate trade in goods and services. However, financial systems also harbour major risks. The recent financial market crisis clearly revealed the vulnerability of our globally integrated financial system. Wrong turns taken in the past few years together with government rescue measures have led to a situation that is, from a liberal perspective, untenable. All this underscores the urgent need to make financial systems more robust and to minimise the risks faced by governments and by national economies as a whole. It will not be possible to banish crises forever, since we cannot be sure what the origins of the next crisis might be or when exactly it will occur. Building a more robust financial system therefore represents a major challenge. The key role that banks play in the economy combined with their high level of vulnerability clearly underline the necessity of effective bank regulation. Greater stability and security, however, do not automatically mean less efficiency or growth. On the contrary, the creation of an intelligent and stabilising framework is a basic prerequisite for the efficient functioning of the financial system.