In February I was asked by the Prime Minister to review corporate governance in UK banks in the light of the experience of critical loss and failure throughout the banking system. The terms of reference were subsequently extended to include other financial institutions.

To limit immediate crisis damage and to stem the risk of further contagion, substantial and wholly unprecedented public policy action has been taken in the form of state injections of equity and takeover of failed institutions, exceptional liquidity support arrangements and materially tougher capital requirements. The recent and current focus of policy debate in the UK and elsewhere has understandably been on the nature, scale and need for continuance of such public policy support and the shape, extent and timing of further regulatory tightening. But serious deficiencies in prudential oversight and financial regulation in the period before the crisis were accompanied by major governance failures within banks. These contributed materially to excessive risk taking and to the breadth and depth of the crisis. The need is now to bring corporate governance issues closer to centre stage. Better financial regulation has much to accomplish, but cannot alone satisfactorily assure performance of the major banks at the heart of the free market economy. These entities must also be better governed.

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