Elgar Financial Law and Practice series
Chapter 7: CORPORATE REPORTING AND THE ACCOUNTABILITY OF BANKS AND FINANCIAL INSTITUTIONS
Banks and financial institutions are subject to mandatory transparency in order to cater to two objectives. One relates to reporting to capital markets, in respect of quoted and listed firms. In this respect the corporate reporting which is accountable to shareholders and investors is in the same vein as corporate reporting generally applicable to the corporate sector. The second objective relates to reporting to the relevant financial regulator in order to facilitate ongoing supervision, particularly in prudential matters. Increasingly, one may also regard reporting as a form of accountability as a wider concept extending to groups of stakeholders and civic society. This chapter will discuss bank and financial institution accountability in all three and interrelated dimensions – to shareholders, to regulators and to the wider public. The two traditional objectives of reporting by banks and financial institutions viz accountability to the capital markets and to regulators have tended to go hand in hand. Corporate reporting to the capital markets, largely dominated by financial reporting, is scrutinised by the financial regulator in order to consider the prudential position of a bank or financial institution. Microprudential reporting by banks and financial institutions that is aimed at meeting regulatory requirements, is also used to assist investors in exercising market discipline, reinforcing the regulatory objectives in microprudential regulation. This is known as the Pillar 3 of the Basel II Capital Accord, an internationally agreed template for capital adequacy in banks.
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