Corporate Governance in Banking

Corporate Governance in Banking

A Global Perspective

Edited by Benton E. Gup

Recent corporate scandals, together with the effects of globalization, have led to an increasing interest in corporate governance issues. Little attention has been paid, however, to international laws and recommendations dealing with corporate governance in banking from a global perspective. This impressive international set of expert contributors – academics, practitioners and regulators – remedies the lack of attention by examining the various issues and concerns of this important topic.

Chapter 13: Corporate Governance in Korean Banks

Doowoo Nam

Subjects: business and management, corporate governance, economics and finance, corporate governance, financial economics and regulation, money and banking, law - academic, corporate law and governance, finance and banking law

Extract

Doowoo Nam INTRODUCTION Financial institutions are important in a sense that they affect the behavior of firms through lending or collecting fund based on the evaluation of a business performance of the firms and financial status. For a long time, however, Korean financial institutions ignored the credit evaluation of borrowers and risk management, having performed only a function of allocating financial resources according to governmental policy decisions. Therefore, the Korean banking industry was criticized as one of the main factors leading to the 1997 financial crisis. Of course, government intervention for various reasons was responsible for the weak banking system, but the wrong structure of corporate governance and decision-making system of Korean banks contributed to the fragility of the banking industry. Of cardinal significance in bank management is the capability of evaluating and managing the credit quality and risks, which cannot be easily or perfectly quantified. In banking institutions, therefore, the possibility for bad loans or poor investment decisions would significantly increase if the decision making process of making loans or investments is under the control of one or two people. In this regard, it becomes most important that the authority is not concentrated on a few, especially a chief executive officer (CEO), in designing the decision-making system of banking institutions. This is where the importance of corporate governance comes in at banking institutions. For the sound corporate governance of banking institutions the decision-making authority should be allocated equitably so that ‘checks and balances’ are...

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