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Corporate Governance Cases and Issues Elisabeth Jackson-Moore June 20th 2006

Corporate Governance Cases and Issues Elisabeth Jackson-Moore June 20th 2006. Egyptian Banking Institute. Outline. Organisations involved Some cases and some issues from - Turkey - India - USA. Some Organisations Involved. OECD IMF World Bank BIS IIF

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Corporate Governance Cases and Issues Elisabeth Jackson-Moore June 20th 2006

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  1. Corporate GovernanceCases and IssuesElisabeth Jackson-MooreJune 20th 2006 Egyptian Banking Institute

  2. Outline • Organisations involved • Some cases and some issues from • - Turkey • - India • - USA

  3. Some Organisations Involved • OECD • IMF • World Bank • BIS • IIF • Governments and bank regulators around the World

  4. Turkey • Role of MoF and Central Bank • BDDK (BRSA) and SDIF established • Bank failures in the 1990s • Pamukbank • Imar Bank

  5. Turkey Bank Failures in Early 1990s • Impexbank • Takeover after Asil Nadir/ Polly Peck • Disagreements between shareholders • Fictitious accounts • Marbank • Takeover after tourism company problems • New owner lacked capital • Fictitious repos

  6. TurkeyPamukbank • Under special supervision for years • Finally, after establishment of BDDK and bank reforms, was taken over • Loans to related parties – collateralised by shares in YKB

  7. TurkeyImar Bank • Mainly took deposits in FX • Paid 1% or 2% over market rates • Appeared profitable, but very poor disclosure • Taken over by SDIF • Unrecorded deposits

  8. India • IIF report • Committee driven system • ICRA experience

  9. IndiaIIF – February 2006 • Positive report – above average compared to other emerging markets • Weaknesses in enforcement • Not the systems in place to monitor compliance • Not the penalties in place for failing to comply • Lack of shareholder activism • Need for pension reform to create class of institutional investors • Role of the press

  10. IndiaRecent Committees • CII Code on Corporate Governance (1998) • Birla Committee (1999) – National Code on Corporate Governance (Government) • Reddy Task Force (2000) – Corporate Excellence (DCA) • Joshi Committee (2002) – Amending Company Law (DCA) • Chandra Committee (2002) – Auditing and Governance (DCA) • Malegam Committee (2002) – Disclosure and Investor Protection (SEBI) • Murthy Committee (2002) – Corporate Governance (SEBI)

  11. IndiaInformation Asymmetries in Banking • Deposit insurance means that depositors don’t bother • Government ownership • Family ownership – may also control the media • Who determines what level of risk is appropriate?

  12. IndiaICRA Experience • Introduced corporate governance ratings in 2003 • 10 ratings assigned in 2004 and 2005 • Two banks – Bank of Baroda, Andhra Bank

  13. USA • CG took on important significance post-Enron, WorldCom, Tyco, etc. • Moody’s response – Enhanced Analysis Initiative • Over 400 companies with most debt now have a CG assessment

  14. Moody’s Opinion of Governance by Franchise

  15. USAGovernance Improvements in US banks • Strong regulation mitigates concerns • Relatively strong board or committee focus on key exposures • Compensation practices more creditor friendly • Succession planning + performance evaluations more formal

  16. USAGovernance Challenges for US Banks • Control failures still prevail • Board composition far from optimal • A potent board within a board could be a concern • Mergers create oversight challenges • Risk oversight a challenge, particularly in light of Basel II • Internal audits may have failed in some banks

  17. USABank Control Failures • Fifth Third • Riggs National • Bank of America • Citigroup • JPMorgan

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