Corporate Governance in Banking: A Conceptual Framework
Penny Ciancanelli E-mail: p.ciancanelli@strath.ac.uk And Jose Antonio Reyes Gonzalez E-mail: areyes@eh.quik.co.uk
Department of Accounting and Finance Strathclyde University Glasgow, G4 0LN Tel: (44) (0) 141 548-3896 Fax: (44) (0) 141 548-3547
This paper can be downloaded from the Social Science Research Network Electronic Paper Collection: http://papers.ssrn.com/paper.taf?abstract_id=253714
Paper submitted for presentation at the European Financial Management Association Conference, Athens, June, 2000 The authors would appreciate that the copyright of this conference paper be respected and that no part of it is cited without the permission of the authors. The paper was
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It is outside the scope of this paper to consider the effect of changes in the financial services industry on the varied ways in which regulators have sought to define a bank.
2 The chief features of systemic risk are well known: Runs (unexpected withdrawal of deposits),
unexpected and rapid reversals by securities holders, excessive volatility in the foreign currency market and generalised symptoms of panic amongst financial asset holders. (Sundarajan and Balino,1991) The desire to prevent such episodes is the main rationale for national regulation and the fear of contagion through global systems of intermediation is the main rationale for international efforts at regulation.
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conceptual framework. We do this by analysing the underlying assumptions of the standard theoretical framework adopted in corporate governance studies and demonstrate two complementary arguments. Firstly, we show that the assumptions of Agency Theory make it unsuitable for analysing governance in commercial banks because regulations intended to prevent systemic risk (e.g. secure the integrity of the banking system) limit the disciplinary power of market forces. Secondly, we demonstrate that the agency problem in commercial banks is structurally different from that found in other publicly listed firms. Regulation, a transcendental feature of banking, alters the parameters of the agency relationship by introducing a third
The idea of “risk” is used in many fields and industries. There has been large efforts made towards the understanding of risk. Since, risk varies so much depending on the field of study, the need for learning about it is warranted. As can be imagined, the importance of risk in a market economy is crucial. In the 1990s, JP Morgan made the Value at Risk (VaR) a central component of its work efforts (Cecilia-Nicoleta, Anne-Marie, & Carmen-Maria, 2011).
This paper was prepared for the Science of Social Issues, Section 245, taught by Professor Ream.
By Thomas Ahrens (London School of Economics), and Christopher Chapman (University of Oxford), from The Contemporary Accounting Research Vol. 21 No. 2 (Summer 2004) pp. 271–301.
This solutions manual provides the answers to all the review questions and end-of-chapter problems in Financial Management: Principles and Practice, by Timothy Gallagher. The answers and the steps taken to obtain the answers are shown. Readers are reminded that in finance there is often more than one answer to a question or to a problem, depending on one‘s viewpoint and assumptions. One answer is
Day J. and Krakhmal V. (2006) fourth edition (2011), An introduction to accounting and finance in business, Milton Keynes, The Open University
Prior to the financial crisis, the overall responsibility for financial oversight was divided among several different agencies. These agencies and their “varying rules and standards led to certain entities not being regulated at all, with others subject to less oversight than their peer
By: Banham, Russ. Journal of Accountancy. Oct 2017, Vol. 224 Issue 4, p28-32. 5p. , Database: Business Source Complete
Before the advent of the Federal Deposit Insurance Corporation (FDIC) in 1933 and the general conception of government safety nets, the United States banking industry was quite different than it is today. Depositors assumed substantial default risk and even the slightest changes in consumer confidence could result in complete turmoil within the banking world. In addition, bank managers had almost complete discretion over operations. However, today the financial system is among the most heavily government- regulated sectors of the U.S. economy. This drastic change in public policy resulted directly from the industry’s numerous pre-regulatory failures and major disruptions that produced severe economic and social
In my review of A Primer on Corporate Governance by Cornelis A. de Kluyver I intend to examine, evaluate, and break down his key points. The book provides a general view on how corporations govern themselves, and the internal and external forces that effect and constrain them. The biggest external force is of course the US Government and the variety of laws and regulations imposed upon corporations. Internally, they are managed by the CEO and board of directors along with a set group of committees and corporate guidelines.
Since the onset of the financial crisis 2008, the sovereign debt crisis in western economies and the new financial regulation with Basel III coming up, the financial industry faces the challenge of reinventing itself. The ring-fence for Commercial and Investment Banking, and new economic and regulatory capital requirements will determine the kinds of products banks will be able to distribute. It will have a huge impact in the Investment Banking business, which will suffer tough regulation and supervisory procedures. At the same time, credit risk models will be reviewed because they have failed to predict the crisis of 2008. The current financial and economic crisis doesn’t have any precedent in the past.
This was a very interesting article, in my opinion it brings to mind the derived phrase, which came first the chicken or the egg. Meaning, is corporate governance an attempt to control the results of unethical practices of corporations or is it meant to deter them. In reading this article, it is clear that certain corporations practiced unethical business behaviors for self-interest, but the questions this author have are: 1. Should corporate governance be regulated by the legislature as well as the organization and to what degree, 2. Is corporate governance, there to protect the shareholder or the stakeholder, 3. How effective is corporate governance on a global level. The need for a governance system is based on the assumption that the separation between the owners of a company and its management provides self-interest executives the opportunity to take actions that benefit themselves, with the cost of these actions borne by the owners (Larcker & Tayan, 2008).
This document is authorized for use only in Financial Management23 by Dr. Raj, at Institute of Management Technology - Dubai from January 2015 to July 2015.
A large financial firm presents systemic risks due to its “interconnectedness, leverage, and its tendency to finance long-term assets with short-term debt.” The systemic risk associated with Money Market Mutual Funds, became glaringly obvious when Reserve Primary Fund, a MMMF, had “broken the buck”. This drop in value of shares from $1.00 to $0.97 spread panic to other MMMFs and created the systemic risk that “the failure of a single entity…can cause a cascading failure” of the entire financial system. Another systemic risk posed by MMMF is that associated with the withdrawals by investors from MMMFs that would lead to a freezing of the markets. This was especially prominent in the short-term investment markets. When $200 billion were withdrawn from “prime MMMFs”, the short-term interest rates immediately spiked. This spike in short-term interest rates posed another systemic risk in that these interest rates affect the entire market and not just one industry or entity. Another systemic risk issue that arises from MMMFs stems from the very essence of these instruments. MMMFs attract risk-adverse
Corporate governance refers to ‘the ways suppliers of finance to corporations assure themselves of getting return on their investment’ (Shleifer and Vishny, 1997: 736). Corporate governance discusses the set of systems, principles and processes by which a
Financial regulation is necessary and without an efficient set of regulations a country could see rises in unemployment, interest rates, and the deterioration of financial intermediaries. With the globalization of the financial industry, it becomes more and more common for businesses to seek financing outside of their county 's boarders. These innovations in the financial industry stress why it is so important for regulations to be created and changed to reduce risk and asymmetric information in financial systems.