Corporate Governance and Access to Finance - ESBG

Indeed, deposit taking ultimately depends on the trust of savers in thefinancial institutions. This trust concerns not only the reward that thosesavers will receive for their deposits, but also (and more importantly) thepossibility of withdrawing these deposits on the agreed terms. On theother side of the balance sheet, credit demand also depends on theconfidence in obtaining reasonable terms of amount, cost, time andopportunity for the loans granted, in a transparent way.In both cases, we should bear in mind that savers and borrowers arenumerous and diverse, and have in general a distant relationship withfinancial institutions. Thus, from the point of view of safeguarding theirinterests, their relationship with the management is even more remotethan that of owners.As regards the payment system, its operation and efficiency also dependscrucially on the trust by all participants: payment recipients, paymentsenders, as well as the entities operating the system.It follows from the above that sound governance of financial institutionsresponds to a variety of objectives (see Basel Committee on BankingSupervision/BCBS, 2006 and 2010b). Figure 2 below illustrates how theseobjectives interact.The listed objectives (sound management, efficiency in resourceutilization and consumer protection) are obviously interrelated. They canalso be categorized into two major groups:1. Internal objectives, which refer basically to the sound managementof the financial institution, in terms of profitability, efficiency andlong-term growth.2. External objectives, which relate to the relationship of the entity withits clients (savers and borrowers), investors and the society at large,in particular its contribution to the correct functioning and stabilityof the financial system. In the case of institutions having a financialinclusion objective this should also be taken into account.42