Governing the financial or bank holding company: How legal infrastructure can facilitate consolidated risk management

Given the view that risk management is a core function of the holding company, the parent audit committee should oversee how risks are identified and managed across the enterprise. With a bank, the parent holding company needs to pay especially close attention to how the bank's audit committee oversees legal and compliance risk. The audit committee of the bank has a distinctive role with respect to laws and regulations that relate to safety and soundness. This role derives from the banks' special status under federal law and the need to protect the public interest. When there exist material violations of safety and soundness laws, the audit committee needs to make prompt disclosure to the bank supervisor and to the holding company, or to the holding company's audit committee. When the governance of the holding company works as it should, all of the interested stakeholders become aligned. Holding company control is one salutary structural feature that should remain.