Corporate governance and
the financial crisis
It is very important for the
corporate governance in the banking sector to make the transaction activity
well managed in order to avoid the financial crisis. The act of corporate in
governance in the bank is to make sure that there is a structure risk management,
if risk management is well managed by the corporate governance, all board of
directors and the shareholder will know immediately if there is a probability
of the financial crisis might occur in the organization. A lack of risk
management in the bank could be one of the reasons of the financial crisis.
Besides a lack of risk management, the agency theory can be one of the factor
that might help to avoid the financial crisis happened in a company. Every single
division in the bank should work together as a team to support corporate
governance. Besides that, the transparency in the company is one of the
important aspects to make the corporate governance work well.
Risk management could help
the corporate governance to evade the financial crisis because this is the
process where the monitoring and identification of the risk might occur with
the endless process and if there is an indication of financial risk might
occur, bank can prepare a further steps in sequence to face the risk. The member
of the corporate governance in the bank should set the right objective for
their firms and the methodology to manage the operation of their bank. There
are eight fundamental process/ steps of the risk management, which are the bank
should define the evidence that related to the task, after that they should
focus of reviewing and analyzing the plan of the process of risk management,
the next step is to identify where the risk is occurring from and structuring
to evaluates for testing the plan whether it is effective or nor for face the
risk. Finally the board of director could divide each risk might happened to
every member of the bank to be managed.
Credit crunch can be one of
the examples from the financial crisis that might occur in the banking sector. If
the corporate of governance in the bank fail to manage the risk management,
there is a possibilities of credit crunch might occur, while it is very crucial
for the corporate governance to look after the risk management, because if the
bank is suffering a bankruptcy, it will harm lots of parties who save or
deposit the money to the bank. Credit crunch is the situation where the
business can’t upsurge their capital due to the inflation by the government.
If we talking about credit
crunch, Northern Rock can be one of the greatest case ever happened. The
collapse of the Northern rock is affected by the credit crunch happened in
United States of America. The reason of the credit crunch in the Northern Rock
is the unpredicted withdrawal of a large amount of money in their bank. This
thing could happen because the external and the internal management in their
organization do not run the risk management. If the risk management in Northern
Rock is well managed, the credit crunch in their company will not occurred. The
financial service authority, which can be categorized, as the part of the
corporate governance does not work based on their standard to keep the risk management
run well. In conclusion, it is very important for bank to look after their
corporate governance (executives and employees) to keep working in track to
sustain the risk management in their organization, since bank is different from
the other company, bank will dealing more with the cash. There will be a bigger
risk for the bank to operate their daily activity without a risk management,
because do not know what risk they might face in the future.
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