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Banking reform required

(China Daily)
Updated: 2009-11-30 08:02

Creditworthiness

Last but not least, when the State takes a controlling stake in banks, the banks actually are supported by the national credit system. This enhances the creditworthiness of the financial institutions.

In case of a crisis, it is very helpful to maintain public confidence. As a result, the stability of the financial system, society and the economy can be preserved.

Of course, the decision-making mechanism is also very important to the banks. We need capable management members and sound supervision of the employees.

But we do not encourage individual heroism. Collective decision-making is important, because it addresses different interests and helps us to move in the right direction.

I know well that the new corporate governance system only has a short history in China's banking industry. There are still a lot of improvements to make in system development and operation mechanisms.

Particularly in the wake of the international financial crisis, banks' boards face even greater challenges and will take increasing responsibilities.

The market and shareholders demand short-term interests, but still we need to find a way of sustainable development in the long run.

In the future, we need to stick to and refine the corporate governance structure with Chinese features in our banking industry.

The recent financial crisis gave us a strong impetus to do so. Taking a look at the problems exposed at the banks in Europe and the United States, we may find these problems are quite different from the past ones.

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There were three major corporate governance crises since the 1990s, each followed by a tide of reform.

In these crises, we saw arbitrary senior executives, fraud, damage to the minority shareholders' interests and other scandals.

Accordingly, past reforms focused on restructuring, tightening discipline, higher requirements for honesty and more protection of minority shareholder interests.

However, the situation is much different after the recent crisis. In the post-crisis era, changes are happening to the imbalanced global economy and the growth modes of different countries.

When the economy is growing more complex, higher standards for corporate governance are needed. Strengthening prudent regulations, international cooperation and coordination are high on the agenda. Companies from different countries also need to work together on how to improve corporate governance.

The board of directors plays an important role in the corporate decision-making system. It should concentrate efforts on making key decisions, setting strategies and monitoring systemic risks.

China's banking industry needs to further improve the corporate governance structure, including the composition of the board and the appointment of independent directors.

More importantly, the boards should go all out to promote better decision-making, and to identify and monitor major systemic risks. We will further open up and cooperate with international leading banks. With a mind to learn from others, China's banking industry will work hard to improve the corporate governance system with Chinese characteristics.

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