Banks vow to improve transparency

The Institute of International Finance (IIF), a banking industry trade group, has promised to improve transparency about risk exposure and executive pay in the wake of the credit crisis.

In its interim report on the crisis, the IIF admitted "major points of weaknesses in business practices and market dynamics, particularly but not exclusively related to the dramatic growth of complex structured products".

IIF chairman Josef Ackermann, the chairman of Deutsche Bank, said more transparency was vital - in risk and liquidity management, but also in pay decisions. "Incentive compensation models should be better aligned with shareholders’ interests and long-term, firm-wide profitability," he said.

The report, written by a committee led by Scotiabank chief executive Richard Waugh, called for the creation of a market-monitoring group of 10-20 members, led by "senior financial statesmen", which would meet to discuss vulnerabilities in global financial systems. It would also be responsible for liaison with other financial stability regulators. Better information release on structured products would also help avoid another crisis, it said.

Waugh added that the main causes of the crisis had been "mispricing of liquidity, the mismatching of cashflows, and deficiencies in the originate and distribute models".

Another committee member, Cees Maas, formerly chief financial officer at ING, said the IIF was hoping to avoid too much involvement of government regulators. "Many of the problems that have arisen lend themselves to market-led solutions with the implementation of significant improvements in management areas by many individual firms. However, we recognise that there are areas where there may be benefits from further regulatory action."

The IIF launched the committee in November 2007. A final report will be issued in June.

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