Introduction Recent Banking Crisis has become one of the key economic crises in the history of the country. Besides creating economic loss, the crisis has also exposed the weaknesses in the overall governance and management practices of the banks. The failure of large banks such as RBS and Lloyds TSB has highlighted as to how these banks were managed and their overall corporate governance practices. The overall failure of the banking organisations as well as the role of regulators, auditors as well as shareholders has also been questioned. The failure of auditors to actually outline what may go wrong as well as the lack of technical skills of the regulators has also been questioned.
Shareholders, during this time has also remained focused on achieving the maximum short term results while compromising long term future of the organisations. It has been suggested that the corporate governance can play an important role in managing the crisis or avert it. Adherence to ethical corporate governance practices can actually help organisations to better manage themselves. The involvement of all the stakeholders and consideration for protecting their interests is an important part of ensuring that organisations put the interests of all the stakeholders intact also.
Since organizations are part of the society therefore they are required to perform ethically and with responsibility. It is therefore important to actually perform ethically and with transparency. Considering the banking crisis and lack of transparent practices, there have been many changes in the UK Code as a result of banking crisis. These changes are discussed below. The Stewardship Code One of the major changes in the stewardship code of the country is the further clarification of responsibilities of the asset managers and asset owners and the stewardship responsibilities which they have actually outsourced.
This change has been made to further clarify the roles and responsibilities of asset managers to further improve the public disclosure of how they are going to perform their stewardship duties. Further, it also seeks to improve the reporting in terms of how those responsibilities which have been outsourced by the asset managers. Changes to the Regulatory Structure One of the key changes in the regulatory structure is to give more power to the Bank of England rather than further strengthening Financial Services Authority.
Government has taken efforts to actually provide more supervisory powers to Bank of England in order to improve the overall supervisory role of the Bank. These changes have been made in the wake of abolishing the role of FSA and replacing it with better control from the central bank of the country. Changes to the code One of the key changes in the code is to make it mandatory for the audit committees to provide a clear disclosure and information to shareholders as to how they have actually carried out their responsibilities and how they have actually assessed the overall effectiveness of the external audit process.
This change has been made in order to ensure that audit committee becomes more responsible towards the shareholders in dispensing their duties. Changes to the structure of bank balances According to the new changes, banks have been required to keep certain portion of their assets in cash as a liquidity buffer. These changes have been introduced under the Basel III requirements under which large banks are required to keep certain portion of their assets and balances in cash in order to create a liquidity buffer which can help them during the days of crisis.
There have also been changes in the capital requirements of the banks with three tiers of capital being created to help better manage the capital of the banks. Conclusion There have been four important changes which have taken place in the aftermath of banking crisis in UK. First, under the stewardship code, asset managers and asset owners are being made responsible to disclose their duty of stewardship along with disclosing the duties which have been outsourced. Further, Bank of England has been given a much larger role to supervise the banking sector.
It has replaced the role of FSA. Further, audit committee has been made responsible to publically disclose as to how they have evaluated the role of external audit and its overall effectiveness in performing its duties. Finally, Banks have been made to create extra liquidity reserves in order to create buffers which can help them to better manage in times of crisis.
There have been changes in the overall capital structure of the banks also making them more responsive to risks they face.