Is corporate governance of bank system important?

Bank industry in western country act not only regulator, but also an important financial institution. However, after Western financial crisis in 2007, bank industry get a huge destroy, even some famous bank get totally failure in this "war" such as Lehman Brothers.

According to the Financial Times, on January 7th 2013, the Basel Committee on Banking Supervision, a club of the world’s main bank supervisors, announced greatly softened rules on the “liquidity coverage ratio” (LCR), the amount of cash and liquid assets they want banks to hold as a buffer to ensure obligations can be met if there is another freeze in funding markets.

The Basel committee’s original 2010 proposals on liquidity were much tougher, as was the timetable. The revised rules allow banks to hold a wider range of assets in the liquidity buffer, including equities and mortgage-backed securities, as well as lower-rated sovereign and corporate bonds. This has lead to banks will have to hold enough cash, and easily sellable assets, to tide them over during an acute 30-day crisis. Some experts think that the rules are part of efforts to prevent another shock to the financial system like that prompted by Lehman Brothers' 2008 collapse.

However, only regulation restriction is not enough for rebuild bank industry. The crporate governance in bank is significant for bank industry. Initially, banks play a vital role in the economy: a bank is the medium between individuals and capital is able to bring enormous benefit to both consumers and business. In the financial systems of developing economies, banks as the engines of economic growth are extremely significant and have a predominant position, for example, the bankruptcy of Lehman Brothers is one of the main reasons for the USA subprime crisis. Similarly, The Royal Bank of Scotland (RBS) failure of October 2008 provides a counterexample of bank corporate governance.
 
The Financial Services Authority (2011) reports that the main reasons leading to RBS failure in 2008 are: poor management decisions, deficient regulation and a flawed supervisory approach. It can be seen that poor bank corporate governance caused this failure. The FSA  points out ‘‘a deficient global framework for bank capital regulation, together with an FSA supervisory approach which assigned a relatively low priority to liquidity, created conditions in which some form of systemic crisis was more likely to occur’’. Therefore, a perfect corporate governance system and strengthening regulation can prevent bank failure.

The most of CEOs may only focus on the profits of shareholders in the build-up to the crisis and take actions which they consider the market would welcome. In fact, the outcomes were not good and these actions were costly to the banks in question and their shareholders. Moreover, their findings shows that bank CEOs did not reduce their stock holdings in expectation of the crisis, and that CEOs did not hedge their holdings.

Therefore the relation between corporate governance and the performance of banks during the subprime crisis, it is significant for banks and bank regulators to recognize corporate governance problems and decide what remedial actions are required