Regulating the Financial Sector in the Era of Globalization: by Z. Mikdashi

By Z. Mikdashi

The world's monetary panorama is remodeling as economies turn into more and more interdependent. In Regulating the monetary region within the period of Globalization , Zuhayr Mikdashi examines the position of public gurus and of commercial executives within the prevention, moderation, containment and backbone of economic difficulties. The publication encompasses a foreword by means of William C. Hunter, Senior vp and Director of analysis on the Federal Reserve financial institution of Chicago.

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The alignment of interests is optimal when incentives built into managers’ contracts are compatible with market efficiency and maximum shareholder value. Managers’ incentives are mainly material, consisting primarily of pay packages that cover – besides salaries – stock options and other bonuses or perks. To reach an optimal arrangement, and to avoid rent being taken by managers at the expense of shareholders, arm’s-length negotiations need to be conducted by a committee of independent board members (representing genuinely shareholders interest) vis-à-vis senior management.

The reliability of that indicator is conditional on market participants having access to timely, accurate and complete information on debtor creditworthiness – which is unfortunately not invariably the case. 14 Following the capital account liberalization in several economies since the 1970s, several international investment funds manage financial volatility15 and return by allocating predetermined specified percentages of their assets across different countries and sectors. Should the market value of a fund’s investment in a given country fall in the aftermath of a crisis, the manager of that fund would be induced to rebalance the fund’s composition by liquidating a portion of the fund’s assets in other countries – notably those with similar risk profiles in favour of safer havens.

2 Controversial practices Influential managers seek to raise their benefits by a variety of forms, and their temptation to excesses is likely to increase in periods of euphoric expectations. This can be illustrated, for example, by reference to certain unseemly business practices which have become public knowledge. For example, managers of mutual funds inflated the value of their portfolios of stocks in order to attract new and unsuspecting investors and/or keep existing ones. 16 Certain investment bankers are reckoned to have derived high profits during the IT or ‘dotcom’ bubble of 1999–2000, when underwriting the initial public offerings (IPO) of client companies.

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