Mohamed Ariﬀ and Mohammad Z. Hoque INTRODUCTION TO CORPORATE GOVERNANCE OF BANKS This chapter attempts to provide a summary report on the status of corporate governance in the banking sector of Australia. A historical fact often vaunted in Australia is that no depositor has lost his deposit in a bank run for over 100 years. Although there were bank failures depositors were paid oﬀ despite there being no deposit insurance! Nevertheless, since governance is a much broader issue than that of depositor protection, bank governance has emerged even in Australia as a key public issue with signiﬁcant movements in the industry on self-regulation and, at the regulatory level, this interest has spawned signiﬁcant regulatory changes. It is still pertinent, in our opinion, to continue to examine the connection between good corporate governance and the performance of banks. It is argued that a superior governance structure, accepting that it is adhered to fastidiously at each bank, would provide the best ﬁnancial services to the clients within a well-governed banking system. To achieve this there is a need for an environment that encourages banks to compete for customers in a competitive banking environment. There are suﬃcient institutional structures in Australia providing an impetus for promoting competition. Given the recent spectacular failures of governance, such as that of a foreign exchange loss in a leading bank, NAB, and the bankruptcy of an insurance ﬁrm, both in 2005, a scrutiny of corporate governance practices is timely to ensure that poor management...
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