Business — Banking — Management — Marketing & Sales

Basel guidance on bank transparency

Category: Corporate Governance

Basel Committee, Paper «Enhancing bank transparency», September 1998

To achieve transparency a bank, in its financial reports and other disclosures to the public, should provide timely information on key factors affecting market participants’ assessment of banks. Basel Committee sets forth the following six broad categories of information, each of which should be addressed in clear terms and appropriate detail to help achieve a satisfactory level of bank transparency:

basic business, management and corporate governance information;

risk management strategies and practices;

risk exposures (including credit risk, market risk, liquidity risk, and operational, legal and other risks);

financial performance;

financial position (including capital, solvency and liquidity); and

accounting policies.

To accurately evaluate a bank’s disclosures about its financial position and financial performance and its risks and risk management strategies, market participants and bank supervision need fundamental information about the bank’s business, management and corporate governance.

Such information can help provide the appropriate perspective and context to understand a bank’s activities. For example, management’s discussion about the bank’s position in the markets in which it competes, its strategy and its progress towards achieving its strategic objectives is important for assessing the bank’s future prospects.

Banks should consider providing general information that would help market participants and supervisors gain a broad understanding of the bank’s corporate culture. Banks should be innovative in identifying the types of information they provide and the methods by which they present such data.

Bank’s organizational structure, in terms of both its legal and management structure, provides information about an institution’s key activities and its ability to respond to changes. Accordingly, it is appropriate to disclose information about the Supervisory Council structure (e.g., the size of the Council, committees, and membership), senior management structure (responsibilities, reporting

Disclosure of basic business, management and corporate governance information lines), and the basic organizational structure (line of business structure, legal entity structure).

In addition, information should be provided about the qualifications and experience of the Council and Management Board senior executives. This information may be helpful in assessing how an institution may perform in times of stress or how it may react to changes in the economic or competitive environment.

Information about the incentive structure within a bank, including its remuneration policies, such as the amount of executive compensation and the use of performance bonuses and share options, helps evaluate the incentives management and staff have to take excessive risks. Useful information may include a summary discussion of the philosophy and policy for executive and staff compensation, the role of the Council in setting compensation, and compensation amounts.

In addition, banks should provide information on the nature and extent of transactions with affiliates and related parties. Such information is useful in identifying relationships that may have a positive or negative impact on a bank’s financial position and performance.

Management Discussion and Analysis (MD&A) disclosure provides a context within which the financial results and financial position portrayed in the financial statements can be interpreted. It also provides material historical and prospective disclosure in the text of a document that enables shareholders and other users of information to assess the financial condition, changes in financial condition and results of operations of a public company, especially the prospects for the future.

« ||| »

Tagged as:

Comments are closed.