Discuss the major functions of Regulatory Authority and Public as a key player of corporate governance and risk management in banks.
Risk management in banking is not just the bank’s internal job. External players — especially regulators and the public — play a very important role in keeping the system safe and honest.
Role of Regulatory Authorities:
Regulators like Bangladesh Bank exist to maintain public confidence in the banking system and ensure fair competition among financial institutions. Their main functions include:
• Setting strict licensing requirements and minimum capital standards before allowing a bank to operate.
• Toughening fiduciary responsibilities and standards for bank owners, directors, and management personnel.
• Providing guidelines on risk management and related policies.
• Setting statutory guidelines with respect to risk positions.
• Evaluating compliance and overall risk management quality in banks.
• Conducting research on the latest developments in the field of risk management.
Regulators may take a prescriptive approach — limiting the scope of activities of financial institutions. Or they may take a market-oriented approach — believing that markets function effectively and should be allowed to operate freely. Most countries, including Bangladesh, use a combination of both approaches.
Role of the General Public:
Investors, depositors, rating agencies, financial analysts, and the media all form part of the public’s risk management role.
• Investors and depositors must take personal responsibility for where they place their money. No regulator can fully protect them from their own bad decisions.
• Rating agencies like Standard & Poor’s and Moody’s publish ratings that inform the public about the financial health of banks. They act as an additional form of risk management for banks.
• Financial analysts provide investment advice to clients and help ordinary people understand banking risk from an investment perspective.
• Public disclosure requirements force banks to be transparent. As Justice Louis Brandeis said: ‘Sunlight is said to be the best of disinfectants.’ When banks know their information will be publicly disclosed, boards and management behave more carefully.
