This has resulted in more independent directors being appointed to the boards in most of the financial institutions. The environment confronting financial institutions will continue to be immensely challenging, particularly in the coming years as global financial conditions remain highly volatile and uncertain, and as regulatory reforms start to take effect. In this environment, a number of areas will become more important to reinforce the effectiveness of boards and sound governance. 2  BIS central bankers’ speeches  First, board-level engagements on risk issues will need to be strengthened further. This can only be achieved if boards have a sound understanding of the institution’s business model, and a strong grasp of the changing complexion of risks in which the institution is exposed. Committed resources should therefore be available to the board to support their understanding of material developments affecting the institution, and to hone their judgement on matters concerning risk strategy. This should include relevant and meaningful management of information flows and risk analysis to the board, the ability to retain talent including external expertise where required, the ability to attract individuals with relevant competencies and experience to serve on boards, and the budget for board development and education. Second, with the growing expansion of financial institutions in scale and complexity, there is a need to inject greater diversity into boards to enable the board collectively to deal with the broader range of issues across the institution’s activities. This needs to be embedded within the framework for board renewal and succession.

8  A fuller explanation is in Tucker P M W (2006b), “Macro, asset price and financial system uncertainties”, Roy Bridge Memorial Lecture at the Annual Conference of the ACI – Financial Markets Association, London, December 2006, Bank of England Quarterly Bulletin, Spring 2007, pp 122-130. 9  The composition of the balance sheets of Large and Complex Banks is discussed at greater length in Tucker P M W (2006b), op. cit. 10  Report on “Towards Greater Financial Stability: A Private Sector Perspective” by the Counterparty Risk Management Policy Group, July 2005. BIS Review 44/2007  5  within their own firms. My sense is that that view is shared by at least some Chief Risk Officers. Greater transparency of such stress testing would not only shed light on the risks retained by the banking system, it might also have a productive effect on incentives – rather as greater transparency has enhanced monetary policy making. What happens when the music stops: ex ante preparation for stress But of course severe stress cannot be ruled out. Central banks and practitioners therefore expend effort thinking about what will happen if and when the music stops. As the Bank’s latest Financial Stability Report discusses, the official sector has stepped up its practice exercises of various kinds. The private sector analogue to crisis resolution is the “workout”, in which a company is restructured under the shadow of insolvency. In a world characterised by bank intermediation, workouts typically involved bank syndicates co-ordinated by a few lead banks.