This essay reviews recent debates over the allocation of regulatory authority in three separate fields of financial regulation: corporate governance, securities regulation, and the regulation of financial institutions. In each field, the essay argues, reform proposals can be organized into three basic groups: those that advocate centralization of regulatory authority; those that favor competition among governmental bodies; and those that recommend the privatization of regulatory standards. While this debate is most familiar in the field of (...) corporate governance, highly analogous policy discussions are currently taking place in securities regulation and the regulation of financial institutions. This essay traces the development of arguments over the proper allocation of regulatory authority in various sectors of the financial services industry, noting differences both in the contexts in which the issue has arisen in various sectors of the industry and also in the ways regulatory authority is currently allocated in each sector. The essay concludes with several tentative thoughts about normative grounds on which debates over the proper allocation of regulatory authority might ultimately be resolved. (shrink)

This article examines the case of institutional inertia in Japanese financial regulation, focusing on the reasons why institutions centered on informal modes of organization and interaction proved particularly The Japanese case serves as a particularly tough test for theories of institutional adaptation and change because even crisis failed to produce timely institutional change. The paper argues that informal, exclusionary and opaque relational ties served as a functional substitute for formal regulation and promoted cooperative government-bank relationships in an (...) earlier period. Yet, when the informal attributes of the system began to impede the sound functioning of the financial system, the very opacity of these ties and the informational dynamics underlying them meant that the Diet and the general public were less than fully aware of the extent of dysfunction present as time went on. (shrink)

In his Reply, Kindleberger falsely ascribes to me the views that political actors are utterly incompetent, while market actors are completely rational; and that political processes are pure chaos, while market processes are perfectly efficient. My point was that the relatively better performance of the market is a result of systemic factors, not the rationality of individuals. Kindleberger fails to address the historical evidence indicating the comparatively poor performance of government intervention in the monetary order. ?Market manias? are, in fact, (...) largely the product of ill?conceived government regulations. (shrink)

Volume 18, Issue 2, May 2024, Page 123-125.

In this article we examine the association between corporate social responsibility (CSR) and firm value. This line of research is important since firms continue to invest in CSR even though past studies reveal a limited linkage between financial value and CSR. However, the business case for CSR or “doing good while making a profit,” appears to be advancing within the business ethics literature as a preferred conception of CSR. We conjecture that the greater unification and refinement of both profit (...) maximization and stakeholder interests through corporate acts, not statements alone, will sustain the financial value of CSR in a less regulated global business environment. We study the triangle of what companies say, what companies do, and firm financial performance. We analyze Fortune 250 firms and find a positive association between what companies do based on KLD Research and Analytics, Inc. (KLD) ratings, and what companies state about ethics in their CSR statements. We then employ regression analysis and find that companies’ socially responsible acts are positively associated with overall firm value and financial performance. Yet we do not find a statistically significant association between what companies say regarding ethics in their CSR statements and their financial outcomes. These results suggest that firm value and financial performance is associated with what companies do and not what they say. Our results seem to be driven by multinational corporations (MNCs) and not by non‐MNCs. This is possibly because MNCs generally operate in a less regulated global business environment that often necessitates strong ethical corporate leadership to further stakeholder interests. Overall, these results help reconcile corporate and stakeholder objectives since evidence of a link between financial performance and doing good sustains global CSR. (shrink)

Soon after the 2008 financial crisis, Gillian Tett, an anthropologist and the US Managing Editor of the Financial Times, suggested that regulators’ and practitioners’ inability to anticipate and respond to deep problems in the financial industry could be traced back to what she called “silo thinking,” wherein experts in one area know nothing about the methods and research of other areas. As she put it, “the essential challenges for investors today…”—and, we might add, for regulators and academics—is (...) “to understand the micro-details of the silos, and see how all the macro-pieces add up”.In years since, many researchers in many fields have sought to identify causes of the... (shrink)

Following the financial crisis of 2008, the Treasury Committee of the UK House of Commons undertook an inquiry into the lessons that might be learned from the banking crisis. Paul Moore, head of group regulatory risk at Halifax Bank of Scotland during 2002–2005, provided evidence of his experience of questioning HBOS policies which resulted in his dismissal from HBOS. The problems that surfaced at HBOS during the financial crisis were so serious that it was forced to merge with (...) Lloyds TSB, another UK bank, to form the Lloyds Banking Group in which the government took a significant stake. Moore’s evidence to the Treasury Committee revealed that long before the financial crisis, he had raised major concerns with the management of HBOS and with the Financial Services Authority, the UK financial services regulator. Moore’s evidence led to the submission of further disclosures, replies and rejoinders as evidence to the Treasury Committee. Moore’s case is therefore of considerable interest to researchers of whistleblowing because it is a rare instance of high-level whistleblowing, the details of which subsequently entered the public domain. The information revealed in evidence to the Treasury Committee sheds light on the process of whistleblowing in the context of the governance and regulation of a major UK bank that subsequently had to be rescued by government intervention during the financial crisis. The paper makes a contribution to the wider literature on whistleblowing, and to a greater understanding of aspects of the financial crisis. (shrink)

La croissance de la taille des entreprises multinationales et de leur sphère d’influence, conjuguée à l’incapacité des États et des organisations transnationales à réguler leurs activités, a fait naître le besoin d’une nouvelle forme de régulation. Une première approche consiste en la structuration et l’organisation d’un mouve­ment citoyen. Toutefois, si certaines expériences ont été un succès , ce mode de régulation peut être détourné ou récupéré par ceux-là mêmes qu’il tente de réguler. Une deuxième approche suggère l’autorégulation des marchés économique (...) et financier. Cependant, les récentes crises financières découlant de comportements non éthiques montrent les limites d’une telle solution. L’objectif du présent article est de proposer un mode hybride de régulation reposant sur la coalition de mouvements sociaux et d’investisseurs responsables, dont les signataires des Principes pour l’investissement responsable, de l’Organisation des Nations Unies. L’efficacité de ce mode hybride de régulation est renforcée par l’évolution technologique et les réseaux sociaux. Ainsi, une dénonciation par des organismes non gouvernementaux appelant au boycottage porte atteinte à la réputation de l’entreprise ciblée, ternit son image et nuit à ses ventes. Si cette dénonciation est de plus appuyée par un investisseur responsable, cela peut provoquer une hausse de son coût de financement. Une coalition entre des « mouvements sociaux organisés » et « des investisseurs institutionnels » responsables, dont les signataires des Principes, peut être contraignante pour une entreprise ciblée, car elle a un effet non seulement sur son marché, sur ses ventes, mais aussi sur son accès aux capitaux. (shrink)

This chapter argues for deregulation of the credit-rating market. Credit-rating agencies are supposed to contribute to the informational needs of investors trading bonds. They provide ratings of debt issued by corporations and governments, as well as of structured debt instruments (e.g. mortgage-backed securities). As many academics, regulators, and commentators have pointed out, the ratings of structured instruments turned out to be highly inaccurate, and, as a result, they have argued for tighter regulation of the industry. This chapter shows, however, (...) that the role of credit-rating agencies in achieving justice in finance is not as great as these commentators believe. It therefore argues instead for deregulation. Since the 1930s, lawgivers have unjustifiably elevated the rating agencies into official, legally binding sources of information concerning credit risk, thereby unjustifiably causing many institutional investors to outsource their epistemic responsibilities, that is, their responsibility to investigate credit risk themselves. (shrink)

Policyholders and other claimants in insurance companies are interested in solidity, i.e., the ability of insurers to meet their claims obligations in both the short run and the long run. Insurance regulators exist in order to represent the interests of consumers. Great emphasis is placed by the regulators of the market on the mandatory and uniform disclosure of relevant financial and operating aspects of insurers. This paper employs simple gametheoretic techniques to address two aspects of the general issue of (...) the desirability of establishing a regulator to assess the solidity of insurers. First, why would uniform information about insurers be desirable? Given that uniformity is desirable, it could be achieved by voluntary agreement of insurers or via regulation. The second issue is how that uniformity is to be achieved; that is, what is the value of a regulator in achieving uniformity? Insurance provides an interesting instance of the general problem. A key determinant is the structure of costs and benefits of securing voluntary agreements across firms. (shrink)

Reports of research fraud have raised concerns about research integrity similar to concerns raised about financial accounting fraud. We propose a departure from self-regulation in that researchers adopt the financial accounting approach in establishing trust through an external validation process, in addition to the reporting entities and the regulatory agencies. The general conceptual framework for reviewing financial reports, utilizes external auditors who are certified and objective in using established standards to provide an opinion on the (...) class='Hi'>financial reports. These standards have become both broader in scope and increasingly specific as to what information is reported and the methodologies to be employed. We believe that the financial reporting overhaul encompassed in the US Sarbanes–Oxley Act of 2002, which aims at preventing accounting fraud, can be applied to scientific research in 4 ways. First, Sarbanes–Oxley requires corporations to have a complete set of internal accounting controls. Research organizations should use appropriate sampling techniques and audit research projects for conformity with the initial research protocols. Second, corporations are required to have the chief financial officer certify the accuracy of their financial statements. In a similar way, each research organization should have their vice-president of research (or equivalent) certify the research integrity of their research activities. In contrast, the primary responsibility of the existing Research Integrity Officers is to handle allegations of research misconduct, an after-the-fact activity. Third, generally accepted auditing standards specify the appropriate procedures for external review of a corporation’s financial statements. For similar reasons, the research review process would also require corresponding external auditing standards. Finally, these new requirements would be implemented in stages, with the largest 14 research organizations that receive 25% of the total National Institutes of Health funding, adopting these research oversight enhancements first. (shrink)

While corporate fiduciary duties in many jurisdictions are generally understood to be owed to shareholders, recent Canadian Supreme Court cases have held that directors owe their duties to the corporation, period, not to shareholders or any other stakeholders. This development has introduced significant indeterminacy to the law since it is not clear what such a conception of the duty requires. The Supreme Court did, however, make one clear statement: it held that directors owe a fiduciary duty to ensure that their (...) corporations obey statutory law. Such a duty encourages compliance with law, but may over-encourage compliance: individual directors do not necessarily gain personally from legal breaches, but may lose personally from them because of fiduciary liability, so they will have excessively strong incentives to avoid such breaches. The Article connects the fiduciary duty to obey law with recent developments in financial regulation that have increased the obligations on directors of financial institutions to oversee risk. By requiring directors to be engaged with risk at a governance level, regulators have enhanced the probability that directors will face liability under their fiduciary duties if their institutions do not comply with financial regulations. As the Article explains, the policy tradeoff between enhanced compliance benefits and over-compliance costs of fiduciary liability is different in the context of financial regulation from that in other settings. For example, significant corporate penalties, as opposed to penalties borne by individual directors, may be inconsistent with the prudential goals of regulation, perhaps because of toobig- to-fail concerns. The fiduciary duty to cause the corporation to obey financial regulation, and a stricter application of this duty than the highly deferential standard that exists in Delaware law, has advantages that do not exist in other legal and regulatory contexts. (shrink)

The growing reliance on non-governmental independent regulators in many social and economic domains, including corporate financial reporting, has brought to the fore concerns over their regulatory accountability. This study looks at one aspect of the regulatory due process-regulatory impact assessment (IA). Drawing on the analytical framework developed by Bovens (Public accountability: a framework for the analysis and assessment of accountability arrangements in the public domain. CONNEX papers, Research Group 2, Democracy and Accountability in the EU, 2006, Eur Law J (...) 13(4): 447–468, 2007), we evaluate the contribution of IA as an instrument for enhancing regulatory accountability in the context of the Financial Reporting Council, an independent regulator for the accountancy profession in the UK. The study’s findings suggest that, despite an increasing level of sophistication in the manner in which IA is used within FRC, the contribution of IA to regulatory accountability remains limited. Specifically, there are concerns as to whether IA is used to achieve a transparent and fair regulatory process or simply to maintain an image of good governance and justify policy decisions that would have been made even in the absence of IA. (shrink)

The real estate industry is characterized by a high degree of financial intensity and is more significant in certain areas. The relative enterprises require certain financial ability and large shareholders’ controlling power to support their survivals and competitiveness. However, due to the multiple adverse impacts of current state policies on banks and private capital, the problem of capital restraints of real estate has become increasingly serious. From a corporate governance perspective, this paper studies the interactions among financial (...) constraints, ownership concentration and corporate performance under different shareholding states: by analyzing the quantitative characteristics of equity structure and searching for the appropriate range of the largest shareholder holding ratio, which has considered both the financial sustainability and characteristics. It is found that raising the ownership concentration could enhance supervision effect rather than encroachment, effectively ease the financial constraints and improve the performance of enterprises, both of which are significant under high ownership concentration. Financial constraints play a significant intermediary effect in absolute holdings and have obvious regulatory effects in decentralized equity. Also, the mechanisms of ownership concentration are reflected in the strengthening of corporate supervision, reduced agency costs, improved operating efficiency, and increased investment attractiveness. The adjusted behavior adds to the responsibility awareness rather than free-ride psychology, forming a dynamic game on financial decisions. Their financial sustainability in areas would provide a nationwide reference for governance reform and managerial behavior. (shrink)

The view from inside improves our understanding on market failure and regulation failure in financial market. The EMH fails to understand the causes of financial bubbles and crashes. Behavioral finance introduces insight from psychology. The heuristic and biases approach studied behavioral asymmetry in static environment that leads to market irrationality and information distortion. The fast and frugal thinking in decision-making further explore more complex situation under changing environment. They argue that soft-paternalistic regulation is needed under information (...) overload. The most critical issue is information uncertainty and complexity. Lacking information in frequency domain is the main barrier in managing business cycles. Data form inside reveals current limitations of financial data mainly in the short-term price changes. Microstructure studies show that pricing process is shaped by trading rules. Quantitative analysis reveals severe instability in high frequency trading and derivative market. Feasible regulation should aim to encourage new technology and sustainable growth, rather than protect obsolete technology and short-term speculation. The most fundamental challenge to sustainable economic order is the excessive size of the derivative markets that crowding out investment in real economy. This is a more severe issue than the climate change. (shrink)

I argue that epistemic failings are a significant and underappreciated moral hazard in the financial services industry. I argue further that an analysis of these epistemic failings and their means of redress is best developed by identifying policies and procedures that are likely to facilitate good judgment. These policies and procedures are “best epistemic practices.” I explain how best epistemic practices support good reasoning, thereby facilitating accurate judgments about risk and reward. Failures to promote and adhere to best epistemic (...) practices contributed to the 2008 financial crisis. I identify and discuss some of the ways in which best epistemic practices were violated in the events that led to the crisis, with a focus on the role of the credit rating agencies. I go on to discuss some of the ways in which these failings have been redressed. I conclude by observing how proactive regulation for best epistemic practices might help us to anticipate and avoid future crises. (shrink)

The rising tide of corporate scandals and audit failures has shocked the public, and the integrity of auditors is being increasingly questioned. It is crucial for auditors and regulators to understand the main causes of audit failure and devise preventive measures accordingly. This study analyzes enforcement actions issued by the China Securities Regulatory Commission against auditors in respect of fraudulent financial reporting committed by listed companies in China. We find that auditors are more likely to be sanctioned by the (...) regulators for failing to detect and report material misstatement frauds rather than disclosure frauds. Further analysis of the material misstatements indicates that auditors are more likely to be sanctioned for failing to detect and report revenue-related frauds rather than assets-related frauds. In sum, our results suggest that regulators believe auditors have the responsibility to detect and report frauds that are egregious, transaction-based, and related to accounting earnings. The results contribute to our knowledge of auditors’ responsibilities for detecting frauds as perceived by regulators. (shrink)

Disclosure of financial interests in scientific research is the centerpiece of the new conflict of interest regulations issued by the U.S. Public Health Service and the National Science Foundation that became effective October 1, 1995. Several scientific journals have also established financial disclosure requirements for contributors. This paper measures the frequency of selected financial interests held among authors of certain types of scientific publications and assesses disclosure practices of authors. We examined 1105 university authors (first and last (...) cited) from Massachusetts institutions whose 789 articles, published in 1992, appeared in 14 scientific and medical journals. (shrink)

In this topical book, Boudewijn de Bruin examines the ethical 'blind spots' that lay at the heart of the global financial crisis. He argues that the most important moral problem in finance is not the 'greed is good' culture, but rather the epistemic shortcomings of bankers, clients, rating agencies and regulators. Drawing on insights from economics, psychology and philosophy, de Bruin develops a novel theory of epistemic virtue and applies it to racist and sexist lending practices, subprime mortgages, CEO (...) hubris, the Madoff scandal, professionalism in accountancy and regulatory outsourcing of epistemic responsibility. With its multidisciplinary reach, Ethics and the Global Financial Crisis will appeal to scholars working in philosophy, business ethics, economics, psychology and the sociology of finance. The many concrete examples and case studies mean that this book will also prove useful to policy-makers and regulators. (shrink)

Introduction Financial incentive schemes have been commonly used by the hearing aid industry as a way of encouraging device sales. These schemes can lead to a conflict of interest as the hearing device dispenser is torn between personal reward over the best interests of their client. This conflict of interest has the potential for the dispenser to develop “moral distress”, a negative state of mind when an individual’s ethical values contrast with those of the employing organization. The purpose of (...) this study was to investigate if there was a relationship between financial incentives and moral distress in Australian audiologists and audiometrists. Methods An online survey was distributed to all members of Audiology Australia and the Australian College of Audiology via email. Participants rated their perceived moral distress from 0 to 10 on the Moral Distress Thermometer and answered four questions about financial incentives in their respective workplace. Results A total of 65 participants, 42 females and 23 males, completed the online survey. A quarter of participants rated their moral distress corresponding to levels of uncomfortable or above. A statistically significant association was found between financial incentives, sales target setting, and higher perceived moral distress in participants. Conclusions For our sample, the implementation of financial incentives created ethical challenges for practicing audiologists and audiometrists. Modifications to employee rewards programs as well as a regulation of device sales are recommended. (shrink)

The purpose of the study is to develop proposals for the liberalization of the financial services sector of the economy of Turkmenistan in the context of the country's potential accession to the World Trade Organization. The article considers the problems and challenges that Turkmenistan may face in the process of negotiations on the terms of accession to the WTO. The scientific novelty lies in the theoretical justification of the expediency of maintaining the status quo in trade in financial (...) services in the short and medium term within the initial list of specific obligations of the country provided for by the GATS. As a result, in the conditions of macroeconomy and its transitional nature, taking into account the unpredictable volatility of hydrocarbon prices, it is recommended to leave the existing restrictions on access to the financial services market and on the national regime unchanged in the context of a gradual process of lifting restrictions on the movement of capital and its complete liberalization. (shrink)

The financial crisis that began in the US real-estate market in 2007 and culminated in a global economic slump showed bluntly how wrong financial risk models can be. This state of affairs has triggered a number of reactions and observations at the level of the specification and use of models and at a more conceptual/fundamental level. This article focuses on the epistemic features of such models – namely the nature, source, conditions of validity, structure and limits of the (...) knowledge that ‘well-specified’ models generate – so as to assess models in a balanced way, giving due weight to the fundamental determinants of their output and warning against overestimation of their possibilities; clarify the conditions under which models can be validly applied to economic and social relationships; render intelligible why the degree of accuracy that successful models would require is intrinsically unattainable; better understand models’ failure as evidenced by the crisis; and comment on the policy steps being undertaken to prevent similar financial crisis in the future. The analysis applies the principal tenets of critical realism to the daily preoccupations of risk management professionals and financial regulators alike. It is not intended as an intervention into critical realism. It draws on the works of Tony Lawson and Roy Bhaskar, and revisits relevant aspects of John Maynard Keynes’s work, connecting dots amongst them and marrying economic and philosophical analysis with day-to-day financial risk management and regulatory issues. Content Type Journal Article Category Article Pages 462-486 DOI 10.1558/jcr.v11i4.462 Authors Mattia L. Rattaggi, UBS/Cambridge Social Ontology Group Journal Journal of Critical Realism Online ISSN 1572-5138 Print ISSN 1476-7430 Journal Volume Volume 11 Journal Issue Volume 11, Number 4 / 2012. (shrink)

Zusammenfassung Um die Öffnung der Bundesliga gegenüber Investoren möglichst wettbewerbsneutral zu gestalten und den Einfluss von externen Geldgebern auf einen Profi-Fußballclub zu beschränken, wurde die sogenannte 50-plus-1-Regel in die Satzung des DFB aufgenommen. In diesem Beitrag wird umfassend analysiert, welche Konstellationen mit beherrschendem Einfluss nicht von dieser Regelung erfasst werden. Ziel dieser Analyse ist der anschließende Vorschlag eines alternativen Konzeptes, welches die vorgebrachten Zielsetzungen konsequent realisieren könnte. Zur Durchführung der Regulation werden außerdem konkrete Handlungsempfehlungen ausgesprochen. Die Vorteilhaftigkeit des vorgeschlagenen (...) Konzeptes wird aus sportökonomischer und rechtlicher Perspektive gewürdigt. (shrink)

High-profile failures in financial trading have led to interest in how the culture of the industry produces risky and unethical behaviours among traders. Yet, there is no established theoretical framework for studying this: we apply safety culture theory to examine ten recent high-profile trading mishaps investigated by the UK financial regulator. The results show that the dimensions of safety culture used to understand organisational accidents in domains such as aviation also explain failures in Risk Management within financial (...) trading organisations. This counters narratives focusing on traders who are unethical ‘rule breakers’, and emphasises the value of a systemic approach, whereby safety culture theory is used to explain why risky behaviours in financial trading occur. Safety culture therefore provides a conceptual basis for further research on risky and unethical behaviours in financial trading, alongside providing insights for possible intervention. (shrink)

The financial crisis was caused by the complex, constantly growing web of regulations designed to constrain and redirect modern capitalism. This complexity made investors, bankers, and perhaps regulators themselves ignorant of regulations previously promulgated across decades and in different “fields” of regulation. These regulations interacted with each other to foster the issuance and securitization of subprime mortgages; their rating as AA or AAA; and their concentration on the balance sheets (and off the balance sheets) of many commercial and (...) investment banks. As a practical matter, it was impossible to predict the disastrous outcome of these interacting regulations. This fact calls into question the feasibility of the century-old attempt to create a hybrid capitalism in which regulations are supposed to remedy economic problems as they arise. (shrink)

This case study examines five dimensions of the 2007–2009 financial crisis in the United States: the devastating effects of the financial crisis on the U.S. economy, including unparalleled unemployment, massive declines in gross domestic product, and the prolonged mortgage foreclosure crisis; the multiple causes of the financial crisis and panic, such as the housing and bond bubbles, excessive leverage, lax financial regulation, disgraceful banking practices, and abysmal rating agency performance; the extraordinary efforts of the Federal (...) Reserve, the Federal Reserve Bank of New York, and the Department of the Treasury to stem the financial freefall triggered by the crisis and resuscitate financial institutions, the ethical implications of the unprecedented actions by government institutions to rescue financial institutions and drag the country back from the brink of global financial collapse, and the conduct of the various parties contributing to the financial crisis, such as the shoddy behavior of mortgage brokers, the massive securitization of mortgages into overly complex bonds, the excessive leverage of financial institutions, the disgraceful work of bond rating firms, the abysmal risk management systems employed by financial institutions, and the massive operations of the shadow banking and over-the-counter derivatives markets; and the major provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act signed into law to in response to the financial crisis and for the purpose of correcting the egregious conduct of major financial institutions. (shrink)

This article puts into perspective the practice of financial regulation in contemporary financial markets, while a new normative order has emerged. This order, heralded by algorithmic technologies, changes the conditions for the exercise of regulation: to date, it has not yet been fully acknowledged nor understood by regulatory bodies. Computer code, replacing speech and writing, induces a changeover from one normative order to another in contemporary markets: the norm, previously explicated with recourse to interpretation, is now (...) replaced by an order characterized by calculation. Such paradigm change is identified based on a discussion of works by Gilles Deleuze. In so doing, it contributes to the developing research programme in the cultures of high-frequency trading (Lange et al. 2016) and also points at broader issues for conceptualising financial regulation. (shrink)

Capital regulations stemming from the Basel accords created incentives for banks to securitize mortgages, even risky ones; hold them at a correspondingly low Basel risk weight; or shift them off of banks' balance sheets to obtain even greater leverage. Securitization was praised by economists and regulators for dispersing risks to investors across the world, providing greater resilience to the financial system. However, since in reality banks tended to hold onto securitized assets—either on their balance sheets or off of them, (...) in off‐balance‐sheet entities—the accumulated credit risk remained with the banks, especially in the “shadow banking sector.” This explains the heightened vulnerability of the financial system to a sudden collapse. (shrink)

Despite a decade of federal regulation and debate over the appropriateness of financial ties in research and their management, little is known about the actual decision-making processes of university conflict of interest (COI) committees. This paper analyzes in detail the discussions and decisions of three COI committees at three public universities in California. University committee members struggle to understand complex financial relationships and reconcile institutional, state, and federal policies and at the same time work to protect the (...) integrity of the scientific process, the autonomy and intellectual freedom of their faculty colleagues and students, and the financial interests of the university. (shrink)

This article aims to compare the national legal systems that regulate biomedical research in an industrialized country (United States) and a developing country (Venezuela). A new international order is emerging in which Europe, Japan and the United States (US) are revising common guidelines and harmonizing standards. In this article, we analyze – as an example – the US system. This system is controlled by a federal agency structured to regulate research funded by the federal government uniformly, either in the US (...) or abroad. In contrast, in Venezuela, a developing country, the creation of a centralized system is a slow process. Different types of ethical committees review research projects using non-uniform criteria. Consequently, various parallel organizations that conduct biomedical research, such as universities, research institutes and private hospitals have diverse regulations operating at a local level. Thus, the most relevant difference between the Venezuelan and the US systems is the degree of standardization. In the US, the review process is performed by institutional review boards (IRBs), which have a similar organization and maintain relationships with a centralized agency, following standard regulations. Although new proposals for establishing national regulations are currently being considered in Venezuela, the success of these initiatives will depend on promoting governmental efforts to create a more structured centralized system supported by a national regulatory framework. This system will need governmental financial support at all levels. This article proposes an integrated system to regulate research with human participants in Venezuela and other developing countries. (shrink)

ABSTRACT This article aims to compare the national legal systems that regulate biomedical research in an industrialized country (United States) and a developing country (Venezuela). A new international order is emerging in which Europe, Japan and the United States (US) are revising common guidelines and harmonizing standards. In this article, we analyze – as an example – the US system. This system is controlled by a federal agency structured to regulate research funded by the federal government uniformly, either in the (...) US or abroad. In contrast, in Venezuela, a developing country, the creation of a centralized system is a slow process. Different types of ethical committees review research projects using non‐uniform criteria. Consequently, various parallel organizations that conduct biomedical research, such as universities, research institutes and private hospitals have diverse regulations operating at a local level. Thus, the most relevant difference between the Venezuelan and the US systems is the degree of standardization. In the US, the review process is performed by institutional review boards (IRBs), which have a similar organization and maintain relationships with a centralized agency, following standard regulations. Although new proposals for establishing national regulations are currently being considered in Venezuela, the success of these initiatives will depend on promoting governmental efforts to create a more structured centralized system supported by a national regulatory framework. This system will need governmental financial support at all levels. This article proposes an integrated system to regulate research with human participants in Venezuela and other developing countries. (shrink)

Speculative bubbles present a problem for the development of sophisticated financial markets in developing economies. This paper discusses the evolution of regulatory institutions in Pakistan pertaining to the Karachi stock exchange and empirically tests for the presence of stock market bubbles in that stock market in recent years. A fundamental is estimated using a VAR approach, and residuals of this fundamental are tested for trends using Hamilton regime switching and Hurst rescaled range methods. Nonlinearities beyond ARCH are also tested (...) for using the BDS test. We are unable to reject the hypothesis of no bubbles or non nonlinearities during the period studied, indicating that Pakistan faces this difficult problem in developing appropriate regulations and institutions for the oversight of its financial markets. (shrink)

The U.S. health care system is ostensibly market based and therefore at least partially reliant on competition and consumer demand to regulate costs. Yet information about an essential feature of market transactions—costs—is typically obscure to patients until long after treatment. When discussing what must be disclosed for informed consent, the same list of required information is often mentioned regardless of the health care system in question, and information about costs rarely merits a place within this list. However, our assumptions about (...) what a moral principle requires need to be responsive to the realities of the health care system in which the principle is applied.This paper explores the moral foundations of disclosure and informed consent to argue that, in a market‐based system of the sort found in the United States, these same considerations support a requirement to disclose out‐of‐pocket costs before patients receive care. Next, I consider two objections to this view: first, that health care practitioners should focus solely on medical considerations in their encounters with patients and, second, that disclosing out‐of‐pocket costs would be too difficult to be mandated. I argue that medical and financial interests are inseparable within the U.S. health care system. If the difficulties in disclosing costs are deemed insurmountable, then the current system may prove unsustainable, both morally and financially, since we face the same practical impediments to implementing any meaningful consumer‐driven, market‐based health care reform. Finally, I explore some of the consequences of failing to disclose costs. The requirements of disclosing costs can be supported by the principle of respect for autonomy, regardless of the consequences, but in light of the consequences of the decision of whether to disclose, a concern about justice provides further support. (shrink)

ABSTRACT Capital regulations stemming from the Basel accords created incentives for banks to securitize mortgages, even risky ones; hold them at a correspondingly low Basel risk weight; or shift them off of banks' balance sheets to obtain even greater leverage. Securitization was praised by economists and regulators for dispersing risks to investors across the world, providing greater resilience to the financial system. However, since in reality banks tended to hold onto securitized assets—either on their balance sheets or off of (...) them, in off‐balance‐sheet entities—the accumulated credit risk remained with the banks, especially in the “shadow banking sector.” This explains the heightened vulnerability of the financial system to a sudden collapse. (shrink)

ABSTRACT Why did the popping of the housing bubble bring the financial system—rather than just the housing sector of the economy—to its knees? The answer lies in two methods by which banks had evaded regulatory capital requirements. First, they had temporarily placed assets—such as securitized mortgages—in off‐balance‐sheet entities, so that they did not have to hold significant capital buffers against them. Second, the capital regulations also allowed banks to reduce the amount of capital they held against assets that remained (...) on their balance sheets—if those assets took the form of AAA‐rated tranches of securitized mortgages. Thus, by repackaging mortgages into mortgage‐backed securities, whether held on or off their balance sheets, banks reduced the amount of capital required against their loans, increasing their ability to make loans many‐fold. The principal effect of this regulatory arbitrage, however, was to concentrate the risk of mortgage defaults in the banks and render them insolvent when the housing bubble popped. (shrink)

Financial misconduct has come into the spotlight in recent years, causing market regulators to increase the reach and severity of interventions. We show that at times the economic benefits of illicit financial activity outweigh the costs of litigation. We illustrate our argument with data from the US Securities and Exchanges Commission and a case of investment misconduct. From the neoclassical economic paradigm, which follows utilitarian thinking, it is rational to engage in misconduct. Still, the majority of professionals refrain (...) from misconduct, foregoing economic rewards. We suggest financial activity could be reimagined taking into account intrinsic and prosocial motivations. A virtue ethics framework could also be applied, linking financial behavior to the quest for moral excellence and shared flourishing. By going beyond utilitarian thinking and considering alternative models, we offer a fuller account of financial behavior and a better perspective from which to design deterrence methods. (shrink)

Richard A. Posner's two books on the financial crisis focus on possible macroeconomic (Keynesian) causes of it, neglecting legal causes that would have had only microeconomic effects, yet could have been responsible for the crisis. Specifically, Posner accepts too readily the conventional wisdom that banks? leverage levels, hence their capital cushions, were deregulated; this ignores Basel I, Basel II, and the Recourse rule, which internationally and (in the last case) in the United States minutely regulated not only leverage levels (...) but the composition of banks? assets. These regulations penalized banks for making business loans in comparison to mortgage loans, and it further penalized them for keeping mortgage loans rather than selling them for securitization and then buying back the ?senior? tranches of the resulting mortgage-backed securities. These regulations may explain the overconcentration of mortgage risk in the banks, and thus the financial crisis. (shrink)

Richard A. Posner's two books on the financial crisis focus on possible macroeconomic (Keynesian) causes of it, neglecting legal causes that would have had only microeconomic effects, yet could have been responsible for the crisis. Specifically, Posner accepts too readily the conventional wisdom that banks’ leverage levels, hence their capital cushions, were deregulated; this ignores Basel I, Basel II, and the Recourse rule, which internationally and (in the last case) in the United States minutely regulated not only leverage levels (...) but the composition of banks’ assets. These regulations penalized banks for making business loans in comparison to mortgage loans, and it further penalized them for keeping mortgage loans rather than selling them for securitization and then buying back the “senior” tranches of the resulting mortgage-backed securities. These regulations may explain the overconcentration of mortgage risk in the banks, and thus the financial crisis. (shrink)

Although non-profit organisations typically have high representation of females on their boards, relatively little is known about the effects of gender diversity in these organisations particularly in relation to financial management. In this archival study, resource dependency theory and agency analysis are combined to provide theoretical insight and empirical analysis of gender diversity on effective financial management in member-governed, community financial institutions. The investigation is possible due to the unique characteristics of the organisational form and region being (...) examined—credit unions in Northern Ireland. The sector has not been subject to external regulation on board gender, yet a wide array of gender mix on boards ranging from 100 % male to 100 % female are in existence. In addition, effective financial management is crucial to their survival and their ability to meet member objectives. Boards with higher female representation exhibit superior financial management first, in respect of loan book quality in the period of austerity following the financial crisis and second when measured against return on assets. (shrink)

Fraudulent financial reporting, financial statements with errors so material as to require restatement, and biased reporting marred by defects such as managed earnings have plagued financial reporting in many countries in recent years. All of those failures are ethics failures that represent breaches of fiduciary duties by individuals who accepted responsibilities but did not fulfill them. The financial reporting system practiced in America is viewed by the parties involved in it as generally satisfactory. However, according to (...) another view, the interests of those primarily and secondarily responsible for those reports conflict with the interests of the intended beneficiaries, or users, of the corporate financial statements. A more realistic view of the actual operation of that reporting system shows that it is fundamentally flawed. Primary responsibility for failures rests with top management and financial management of the reporting corporation who are so strongly motivated to render favorable reports on their stewardship that they neglect their fiduciary responsibilities to investors. Secondary responsibility falls on independent auditors who are so heavily influenced by enterprise management that they, too, fail in carrying out their responsibilities to users of the audited financial statements. Ethics compromises are also found in the performances of academic accountants and members of accounting standards-setting bodies. The conflict between managements interest in reporting its performance in a favorable light and investors interest in decision-useful financial information will always exist and require regulation. However, changes in those regulations and in the basic governance arrangements involving shareholders, management, and auditors could reduce the opportunities and temptations for failures in carrying out fiduciary responsibilities. Most importantly, the close relationships between auditors and management must be loosened in favor of closer relationships between auditors and investors. (shrink)

Regulating clinical trials for testing new drugs is fraught with risk. Misregulation can slow development of innovative and useful new drugs, but in other ways misregulation can foster trials that are inefficient and unethical, driven by commercial rather than scientific ends, and that can harm patients. In this paper, we argue not for more but for better regulation, based on the goal of rapidly producing innovative and safe products that represent significant advances in medical care. Data on industry-funded, late-stage (...) clinical trials demonstrate an urgent need for dramatic changes in how these trials are designed, conducted, and analyzed. On the one hand, current patent rules can dissuade development of innovative new products with smaller markets and press trial designers to create positive results too rapidly. But at the same time, numerous studies show that when the pharmaceutical industry sponsors clinical trials, the results are systematically biased in favor of the sponsor's product, often to the detriment of patients and the public. The reasons for this bias are both complex and unavoidable, and the ways in which clinical trial design, conduct, and reporting can be inappropriately influenced are so varied and nuanced, that efforts to manage this conflict of interest and prevent harms are inevitably unsuccessful. Instead, we conclude such conflict should be avoided and a strong firewall should exist between drug developers and the final stages of clinical testing in humans. All financial support for phase III clinical trials should pass through a public-private partnership organization — perhaps tied to a broader clinical effectiveness research enterprise — which would be charged with designing, funding, and monitoring late-stage human clinical trials of new pharmaceutical products. (shrink)