Four Ways to Fix the Banks

Summary

Big banks continue to have a governance problem, which poses significant risks not just to them but potentially to the entire economy.

Big banks have become too complex for boards to govern them effectively, writes a former top executive at Bank of America and Citigroup. Directors need simple tools to cut through that complexity, and Krawchek suggests four:

  • Pay top executives with bank debt instead of just stock and stock options, to give them more incentive to worry about risk.
  • Pay dividends as a percentage of earnings instead of as a set amount, to preserve capital in downturns.
  • Ignore net interest income in judging bank performance, and pay much more attention to customer satisfaction metrics.
  • Focus board attention not on the most troubled business segments, as is customary now, but on those that are using the most capital.

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