Improving the governance of financial institutions

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Book Chapter

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Farrar, J. (2012). Improving the governance of financial institutions. In M. Ariff, J. Farrar, & M. Khalid (Eds.). Regulatory Failure and the Global Financial Crisis: An Australian Perspective (pp. 127-138). Cheltenham, UK: Edward Elgar

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2012 HERDC submission. FoR code: 180105

© Copyright Mohamed Ariff, John Farrar, & Ahmed M. Khalid, 2012




The global financial crisis has challenged many of our assumptions about the contemporary financial systems in place in the developed economies. In the last decade or so we have seen the re- organization and transformation of the financial services sector. We assumed that in spite of market fluctuations, management of financial firms and the investors using these products basically understood their business, lines of authority were clear and followed, and adequate risk management systems and other internal controls were in place. The present crisis has shown that on the contrary this was not necessarily so. Banks have given credit to anyone who wanted it in fraudulent fashion. They have failed to handle risk effectively, with rating agencies not rating risk appropriately. Instead of expediting the flow of capital to industry they have frozen it to earn untold riches to the movers of financial contracts.

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