Bank boards \'come under scrutiny\'

The boards of UK banks and the role they played in the credit crisis are expected to come under scrutiny in a report due out later on Thursday.

Analysts say the review of corporate governance, by ex-City regulator Sir David Walker, may pave the way for boardroom practices to be overhauled.

The report, commissioned by the Treasury, is expected to focus on the way risk is managed at banks.

The issue of pay and how it is linked to risk is also likely to be addressed. Sir David has spoken to banks, institutional investors, and experts in remuneration and corporate governance in preparing the report - due out at 1000 BST on Thursday.

Inexperience

After many people, including MPs, questioned the level of banking experience of some directors at firms - Sir David is expected to set out plans for directors to have higher levels of skill and to receive formal training. There is concern that too many people working at board level within banks do not have any formal training as bankers.

The former head of Halifax Bank of Scotland (HBOS), Andy Hornby, came from a retail background, having previously headed up supermarket chain Asda.

Following massive losses from bad loans, HBOS was taken over by Lloyds TSB at the end of last year. The merged group, which is part owned by the government, is now called Lloyds Banking Group.

It is expected that the Walker report will stress the need for banks to be run by bankers.

Responsibility

After Royal Bank of Scotland came close to collapse under Sir Fred Goodwin, it is also expected that Sir David will recommend that bank boards be forced to show they are able to challenge a chief executive who they feel is endangering a bank. To this end, it is expected that the report will focus on the role of non-executive directors - those who do not have responsibility for the day-to-day management of the business and who are, therefore, expected to keep a close eye on the overall risks being taken by banks.

Some feel that they failed in this responsibility prior to the financial crisis.

There may also be a call for non-executive directors at banks not to hold too many posts, for fear that they are unable to give sufficient time and focus to the financial institutions.

Transparency

Finally, the report is likely to focus on pay, and bonuses in particular.

There is a widespread call for more transparency in pay. Many star traders, for example, can earn many times more than board members but there is no obligation for them to disclose their bonuses to shareholders.

The bonus culture is seen as encouraging excessive short-term risk taking at banks, which was a major factor in sparking the financial crisis, which in turn triggered the global economic slowdown.

There is genuine concern that big bonuses are making a comeback after US banking giant Goldman Sachs announced earlier this week that it set aside $6.65bn (£4.1bn) between April and May, more than $225,000 for each employee, for pay and bonuses.

The Walker Review, which will go out for consultation, comes as the City watchdog, the Financial Services Authority, continues its inquiry into the crisis which ripped through the UK banking system last year.

The measures in the report were foreshadowed by the Treasury's white paper on financial regulation, published last week, which announced a radical shake-up of the regulatory system for banks.