This paper concentrates on the application of these principles in banks and their importance in bank risk management.
Corporate governance is important in banking institutions because it ensures that procedures are in adherence. Banks faces various risks which require proper planning on risk management in order to deal with them amicably (Gup 281). Corporate governance ensures equal treatment of shareholders by giving them a chance to participate in critical matters. This is possible in participation of meetings where important matters concerning a bank are in discussion. Here, the bank exposes the shareholders to decision making thus they exercise their rights (Matutes & Vives 5). They contribute by giving their opinions on certain vital issues hence helping the bank management on risks that it is likely to face (Matutes & Vives 5). The shareholders of banks via the participation in meetings feel respected because of involvement in decision making. This way, the bank exercises openness which is an important aspect in corporate governance (Tang & Changyun 52).
The application of corporate governance ensures risks such as credit risks, liquidity risks, and market risks are in good management. This is possible through analyses of the risks expected in banks and using corporate governance principles to implement important decisions (Tang & Changyun 54). A banking institution is likely to face severe financial crises if exposed to credit risks. Corporate governance is able to reduce the level of credit risks plus increase the rates of return of bank by conforming to acceptable levels of risk exposures. Corporate governance provides procedure through which banks follow in order to deal with credit risks (Parlour & Plantin 1295). For example, there is a need of evaluation of the risk thus, measurement of the risk is vital. The process of quantification is present in the corporate governance principles.
This is possible through