ownership of professional services firms October 24, 2007
Posted by Bradley in : Uncategorized , comments closedThe EU Commission has published a report which it commissioned from Oxera, a consulting firm, on the relationship between rules on ownership of audit firms and competition in the market for audit services. The Commission’s press release describes the report’s conclusions as follows:
-The audit market for major listed companies is dominated by the Big Four audit firms. For the smaller audit firms, important investments might be necessary over years in order to expand and to enter the international audit market.
– Analysis of an investment model developed to assess such potential expansion plans indicates that an audit firm owned by external investors, instead of auditors, might take more easily the decision to expand into the market of large audits. One of the reasons is that existing ownership structures may be estimated to increase audit firms’ cost of raising capital by perhaps as much as 10%.
– Nevertheless, restrictions on access to capital appear to represent only one of several potential barriers to entry. There are other barriers which also play an important role: reputation, the need for international coverage, international management structures, and liability risk. The impact of liability risk on the cost of capital can be significant and may lead to capital rationing.
– There may also be good reasons for audit firms to stick to their current structures: for example, to retain their human capital. From the regulatory point of view, existing ownership structures have been justified by the necessity to protect independence of audit firms. However, the analysis of the decision-making processes in large audit firms indicates that alternative ownership structures are unlikely to impair auditor independence in practice. Specific conflicts of interest could be dealt with through the establishment of appropriate safeguards.
rodrigo de rato on earthquakes October 22, 2007
Posted by Bradley in : Uncategorized , comments closedWe already know that we should not try to regulate crises out of existence: that would be like trying to ban earthquakes. But the weaknesses in our infrastructure that have been exposed need to be addressed. We need to make sure that the regulatory infrastructure is strong enough and simple enough to handle crises in a globalized world…
…Perhaps most importantly, the crisis reveals the range and the risks of financial globalization. Those at risk are not just loan originators in the United States, but banks in Germany and the United Kingdom, borrowers in eastern Europe, and ultimately exporters in Asia and Africa. This points to the vital importance of multilateral cooperation on financial market issues. It is possible for a few countries to get together and come up with regulatory changes, but they are unlikely to come up with the best global solution, because they do not represent all of those affected. And without the participation and ownership of all countries who have to implement it, translating even the best-designed proposal into reality will be a very difficult task.
Of course, the IMF has a role here…
george monbiot on northern rock October 22, 2007
Posted by Bradley in : Uncategorized , comments closedThe democratic challenge, which becomes ever more complex as the scale of human interactions increases, is to mimic the governance system of the small hominid troop. We need a state that rewards us for cooperating and punishes us for cheating and stealing. At the same time, we must ensure that the state is also treated like a member of the hominid clan and punished when it acts against the common good. Human welfare, just as it was a million years ago, is guaranteed only by mutual scrutiny and regulation.
iif statement October 21, 2007
Posted by Bradley in : Uncategorized , comments closedToday the Institute of International Finance made an announcement:
..the IIF’s Board of Directors is launching a major initiative to refine best practices for market participants. Our Board brings together leaders of some of the largest financial institutions from across the globe who are committed to this initiative.
The Board is establishing a committee to produce recommendations by the Spring of 2008 that reflect the views of leaders of our industry and that can enjoy strong support from financial services firms across the world and that complement efforts underway by the official community.
The committee’s agenda will concern a variety of key aspects of important issues, including those relating to structured products, comprising:
* Risk management, credit underwriting practices, and pricing of risks;
* Conduits and the contingent liquidity risks that firms have been exposed to by using off-balance sheet instruments;
* Valuation questions, especially where markets are thin or absent;
* Ratings — interpreting and evaluating them; and,
* Transparency, disclosure and communications to define appropriate standards.
get smart about credit day October 18, 2007
Posted by Bradley in : Uncategorized , comments closedToday is Get Smart about Credit Day. The American Bankers Association and the US Treasury teamed up to provide financial education together:
U.S. Treasury Department officials and bankers across the country will team up Thursday to promote wise credit habits for U.S. teens as part of the American Bankers Association Education Foundation’s annual Get Smart About Credit Day. Students will participate in lessons on the responsible use of credit and the importance of a positive credit history, as Treasury officials and staff travel to schools nationwide to teach classes with local bankers.
us banks provide liquidity support October 15, 2007
Posted by Bradley in : Uncategorized , comments closedIn the US, and encouraged by the Treasury,banks have agreed to provide liquidity in the market for asset backed commercial paper:
Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), JPMorgan Chase & Co. (NYSE: JPM) and several other financial institutions have reached an agreement in principle to create a single master liquidity enhancement conduit (“M-LEC”). Once established, M-LEC will agree, for a set period of time, to purchase qualifying highly-rated assets from certain existing SIVs that choose, in their sole discretion, to take advantage of this new source of liquidity. Access to such liquidity is intended to allow participating sellers to meet pending redemptions and facilitate asset-backed commercial paper rollovers.
northern rock to virgin money? October 13, 2007
Posted by Bradley in : Uncategorized , comments closedRichard Branson’s Virgin wants Northern Rock. Sounds painful.
fighting scams October 12, 2007
Posted by Bradley in : Uncategorized , comments closedRegulators sometimes try to fight scams using similar techniques to the scamsters. This week’s example involves OFT scambusters and trading standards officers hanging around airports trying to protect travellers against holiday club scams:
After spending thousands of pounds, consumers often find they have bought little more than access to an internet booking service offering no more than they could get at any high street travel agent. To fight back against the scammers, the OFT will hand out thousands of fake holiday club scratchcards at Glasgow, Manchester, Luton and Bristol airports in October. The card, which asks ‘have you won a luxury holiday?’, is scratched off to reveal three ‘winning’ matching symbols whilst a second strip, revealing the prize, explains the consumer has in fact ‘won a trip to a lengthy sales presentation and a chance to pay thousands of pounds for membership to a bogus holiday club’.
Another, older, example is the SEC’s use of fake web sites, such as the McWhortle web site.
uk banking reform October 11, 2007
Posted by Bradley in : Uncategorized , comments closedThe UK Government published a discussion paper on banking reform and the Guardian reports:
“A new regime is needed so that depositors are insulated from a bank that fails,” said the chancellor, who also revealed that he and his wife have a Northern Rock mortgage.
Today’s Hansard quotes the Chancellor as follows:
With permission, Mr. Speaker, I should like to make a statement on Northern Rock plc. Before I start, however, I draw the House’s attention to the fact that I have informed both the Register of Members’ Interests and the Treasury’s permanent secretary that, like many others, my wife and I have a mortgage with Northern Rock, but no savings or deposits.
12.10.07: The Chancellor’s statement can be found here.
financial regulation and road safety October 9, 2007
Posted by Bradley in : Uncategorized , comments closedClaudio E. V. Borio in a BIS working paper analogises strategies for dealing with financial stability to strategies for ensuring road safety suggesting a need to focus on speed limits as well as buffers.