Corporate Governance and Access to Finance - ESBG

3.2. Public banksPublic banks are of special interest, given their relative importance inthe WSBI membership: they represent 57 percent of WSBI members, and55 percent of their assets. The BCBS (2006 and 2010b) subjects them tothe same general principles of sound governance as the ones that applyto any other bank, because the Committee believes that state-ownedbanks may face many of the same risks associated with weak CorporateGovernance than private banks (paragraph 19 of BCBS, 2010). Therefore,the Basel Committee concludes that “the general principles of soundcorporate governance should also be applied to state-owned or statesupportedbanks, including when such support is temporary (eg duringthe financial crisis that began in mid-2007, national governments and/orcentral banks in some cases provided capital support to banks)” 12 .This does not preclude the possibility to determine explicit soundgovernance principles for government-owned entities, as described byOECD (2005) for public companies in general. The BCBS documents(2006 and the 2010b) also note three specific principles relevant forgovernment-owned banks, which are:nnIn this type of bank a potential conflict of interest could take placeif it is both owned by and subject to banking supervision by a stateinstitution. Should this be the case, then there must be a fulladministrative separation of the ownership and banking supervisionfunctions to minimize political interference in the supervision activities(paragraph 59, Principle 3 of BCBS, 2010). Under a sound regulatoryframework, the role of the supervisor is essential in this regard.For instance, in the case of BancoEstado (Chile), a government-ownedbank member of WSBI, “the risks of political interference are partiallymitigated by a rigorous prudential supervision by the Chilean bankingsupervisor”, as stressed by Rudolph (2009).Governments should not participate in the daily management ofpublic banks, but respect the independence of the board. The lattermust maintain its responsibilities outside political influences that couldlead to conflicts of interest (for example, when directors explicitlyrepresent political interests or are public officials).12 Most public banks considered in this section are state-owned institutions, with theimportant exception of the German Sparkassen, where the Municipality is the “Traeger” –a German term that can be translated as “supporting or responsible institution” –, but notthe owner. See Annex 2.50