Corporate Governance
The bank’s Board of Directors7 (or Board) and senior management exhibited a pattern of
mismanagement of the bank and failed to provide an adequate system of corporate governance.8
The Board of Directors’ lack of adequate oversight was a principal cause of the bank’s failure,
and happened in large part because the Chairman dominated the bank’s Board. Mismanagement
of the bank included failing to diversify the risk of the bank’s loan portfolio, engaging in highrisk
activities without proper risk management processes, circumventing or disregarding various
laws and banking regulations, and frequently ignoring examiner recommendations. Adding to
these problems were a weak internal audit function and external audits that did not always follow
up on certain questionable asset valuations that were material to CBC’s financial statements. To
achieve an effective corporate governance environment, all four areas – the Board, senior
management, internal audit, and external audit –must be in place and working cohesively. As
discussed below, this did not occur at CBC.
Corporate GovernanceThe bank’s Board of Directors7 (or Board) and senior management exhibited a pattern ofmismanagement of the bank and failed to provide an adequate system of corporate governance.8The Board of Directors’ lack of adequate oversight was a principal cause of the bank’s failure,and happened in large part because the Chairman dominated the bank’s Board. Mismanagementof the bank included failing to diversify the risk of the bank’s loan portfolio, engaging in highriskactivities without proper risk management processes, circumventing or disregarding variouslaws and banking regulations, and frequently ignoring examiner recommendations. Adding tothese problems were a weak internal audit function and external audits that did not always followup on certain questionable asset valuations that were material to CBC’s financial statements. Toachieve an effective corporate governance environment, all four areas – the Board, seniormanagement, internal audit, and external audit –must be in place and working cohesively. Asdiscussed below, this did not occur at CBC.
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