The Analysis : The Libor Scandal

The Libor Scandal began in the year of 2012. In 2003, a major outbreak investigation started due to reliable banks being a prime source of manipulation of interest rate, affecting many in the benefit of

The LIBOR manipulation took place during economic upswing (2005-2009) and global recession (2007-2009). Before crisis the rates were manipulated on the both sides, lower and upper. The traders requested to increase as well as to decrease the rate depending on their bets. If the traders managed to get the rates higher before the financial crisis then the consumers suffered.

Corporate governance: “The set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control.” (Cornett, Adair, & Nofsinger, 2016, p. 16).

Corporate governance in itself has no single definition but common principles which it should follow. For example in 1994 the most agreed term for corporate governance was “the process of supervision and control intended to ensure that the company’s management acts in accordance with the interest of shareholders” (Parkinson, 1994)1. Corporate governance code is not a direct set of rules but a self-regulated framework which businesses choose to follow. This code has continued to change in the past 20 years in accordance with what is happening in the business world. For example the Enron scandal caused reform in corporate governance with the Higgs Report which corrected the issues which were necessary. Although it does not quickly fix problems, it gives a better framework to

We now know that we have the power to prevent another financial crisis in the future. The oversights of many different groups all led to the chaos of 2008. Looking back, if one or two of these institutions had changed their practices in response to red flags, the growth of the housing bubble could have been dramatically slowed, or even fully prevented.

In a recent article in the New York Times, Sarbanes-Oxley, Bemoaned as a Burden, Is an Investor’s Ally, by Gretchen Morgenson, is about some challenging the requirements that were put in place and the cost to the company’s. According to Morgenson, Tom Farley is one that is an outspoken critic of the law requiring outside auditor to attest on the management’s internal controls on the financial statements. He attributes the decline in corporations in the Unites States.

In order to ensure effective regulation, the Sarbanes-Oxley legislation contains eleven sections that describe responsibilities of corporate boards (Engel, Hayes, & Wang, 2007). In case these responsibilities are not performed, criminal penalties are applied. The need for stricter financial governance laws created the global trend and such countries as Canada, Germany, France, Australia, Israel, Turkey and others also enacted the same type of regulations (Damianides, 2005). Today, the Sarbanes-Oxley legislation continues to play a fundamental role in the process of protecting the rights of investors and supporting a high level of investment attractiveness of the United States and companies that operate in the country. That is why this particular legislation can be considered as extremely benefiting for the national economy as well as investors.

5. News of the massive fraud prompted an angry public to question why the nation’s “watchdog function” for the capital markets, particularly the independent audit function, had failed once again.

Regulations such as the Insider Trading Act, the Dodd-Frank Act, and Sarbanes-Oxley Act of 2002 (SOX) enhance protection and eradicate unethical business practices. Despite the various laws in place to protect individuals, just turn on the news, read the paper, or glance online at the numerous corporate scandals. Enactment of legislation such as SOX and the Dodd-Frank Act endeavored to restore the public’s trust. Do these rules mitigate the risk, or are they burdensome on broker-dealer such as Group Capital? While laws exist to protect consumers, investors, and shareholders, the question remains are they excessive. The sustainability and ramifications of financial regulation receive minimal thought, and the possibility of future crises garners even less consideration. Kaal (2013) indicated a sense of urgency around rule-making, yet it may not allow a full evaluation of the effect on a broker-dealer. Many of these decisions consider the economic, political, and legal costs on society and not the impact on businesses. Regulators need to balance consumer protection without being punitive towards the financial industry. These factors need balance, or they could stifle business

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.

The Wells Fargo scandal originated back in 2011 when employees created over 1.5 million fraudulent bank and credit card accounts for their customers and charging the customers fees for these accounts that they didn’t know they had. The employees were given sales quotas that were clearly unrealistic and pressured to use unethical policies for obtaining them.

The reality of systemic risk made the task of regulating the financial system increasingly complicated, as the crises aren’t contained in one country or market. The extreme inter-dependence between the different agents is the main reason why we need regulation today, as some misconducts can cause a domino effect, affecting markets globally. The structure of the banking system in itself explains this process. In the finance industry, banks borrow money from other banks. If one bank fails, the one who lent the funds in the first place might also follow the same path, creating panic in the markets. The government’s first prerogative is to protect its citizens from these

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).

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

As explained by Schelker (2013), the agency problem between the owners and the management of a firm is at the heart of the corporate governance literature. Hence, there is a need for a