Complexity of Bank Structures, Off-Balance Sheet Entities, Disclosure and Transparency

Chapter 37 of the Stage 2 Key Code and Advanced Handbook examines the complexity of bank structures, off-balance sheet entities, disclosure and transparency. We begin with a discussion of off-balance sheet entities and the relational approach and identify that the separate legal entity principle can affect group-wide risk policy and disclosure. We then move to consider complex and opaque bank structures including the complexity of bank structures and directors’ duties to the entity, boards of parent companies and that complexity makes oversight by non-executive directors problematic. We then construct the [NEDBankStructInfo] (−) variable for non-executive directors recognising that complex and opaque bank, group and entity structures result in a reduction in decision quality and delineation and disclosure of powers, duties and lines of responsibility with a coverage/rating of −4/50.00 rprox. There follows a discussion of complex and opaque bank financial instruments including complexity of financial products and lack of control. Focus then shifts to bank (continuous) disclosure and transparency and structured products including ASX continuous disclosure obligations and ASX information and facilities for security holders. We recognise that information asymmetry extends beyond shareholders and consider principles for transparency and disclosure. For disclosure at the structured-product level, we review deficiencies in the quality of decision-making by non-executive directors and deficiencies in the transparency and timing of reporting and internal and external monitoring. For disclosure at the financial institution level, we recognise risk disclosure, valuation disclosure and liquidity disclosure.