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* Taylor says committees must be servants of the board
* Boards must fully grasp what's going on (Adds more detail)
By Huw Jones
LONDON, Nov 20 (Reuters) - Bank boards must have acollective understanding of how much capital the bank needs andthe way staff are paid rather than delegate all key decisions tocommittees, a Bank of England policymaker said on Thursday.
Board members were criticised for not fully grasping theirjob, such as understanding the risks from complex financialderivatives, after the 2007-09 financial crisis highlightedmajor governance failures.
Martin Taylor, a member of the BoE's Financial PolicyCommittee (FPC), said that in response to such failures in thepast and to operate more efficiently, boards have increasinglydelegated important decisions on risk, remuneration, audit andcapital allocation to committees.
"I believe this efficiency has been bought at a high pricein reduced board cohesion," Taylor told an investment conferencein London.
"It has got harder - perhaps because some organisations areungovernably large - for boards to see any sort of big picture.Unable to encompass the blurred outlines of a sometimes uglyreality, individuals take refuge in trivial detail."
A board must have "collective understanding" of and takeresponsibility for models used by the bank to determine how muchcapital they hold, Taylor, a former chief executive of Barclays bank, said.
Unless the board understands all the different activities ofthe bank, then it should either acquire this understandingquickly or "reduce the breadth of its ambitions".
The FPC has powers to direct banks to make changes incapital levels and sets the overall tone for supervision by theBoE's Prudential Regulation Authority arm.
Taylor said boards should also understand the incentivesthat underlie remuneration systems and understand all thedifferent activities in which the lender is engaged in.
"Every one of these considerations is too big to delegate toboard committees," said Taylor.
"They are quintessentially matters for the whole board, anda board that applied itself to them all properly would not haveto worry about spending its next awayday in Pentonville(prison)," he added.
Committees need to be "obedient servants" of the board, notits masters. (Editing by Steve Slater and Susan Fenton)
