Module Code B9MG135

Module Name B9MG135 Global Financial Markets

Date 01/05/2020
Student number 10527025
Student name Yugal malik

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Question 5
What is corporate governance?
The set of laws, procedures, and processes by which a corporation is regulated and
managed is corporate governance. In corporate governance, the alignment of desires of
several stakeholders, including owners, managers, customers, vendors, financiers,
government, and the environment is important. corporate governance. Since corporate
managers can provide a structure for the achievement of a company's priorities, it
encompasses nearly any area of managers, from action strategies and internal monitoring to
success assessment and organizational divulgation.
LEHMAN BROTHERS
Lehman Brothers' downfall may be said to have been attributed to the absence of a business
corporate culture that applied stringent risk control initiatives. The organization
concentrated on financial motivations and activities in dishonest accounting that
contributed to better risk control. If the economy collapsed, the business always lost as the
profits could not be recovered. To tackle economic downturns, financial companies globally
and throughout the United States can now properly comply with tighter corporate
governance and regulatory oversight under the Dodd-Frank Act and the Basel III rules.
Various scientific and investigative research has shown the significance of institutional
corporate governance considerations defined by the New York Stock Exchange Commission
on Corporate Governance in 2010. The key, recurrent systemic factors were all-powerful
CEOs, inadequate management governance structure (duality and related board
independence issues) emphasis on short-term success goals (and related executive pay
packages), low standards of ethics, and ambiguous communications. The fake financial

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statements and unnecessary risk take-away, triggering the US financial crisis in 2008, played
a key role in these poor corporate governance causes.

The new regulations put in place since

Lehman was the bank that let officials collapse-an anomaly that seemed the law-in contradiction the
standards. About every bank persisted with just a form of State assistance or loan, and that was
accompanied by a decade of quantitative easing and extremely low-interest rates.

More regulators
The financial crisis and the collapse of Lehman led to a wholesale re-examination of the
structure of the financial system, its operation, and regulation around the world. The broad
consensus was that failures and complacencies in regulation and regulators had played a
significant role.
Key takeaways

 The system of regulations, procedures, and processes to run an organization is corporate

governance.
 The executive board of a corporation is the primary force in corporate governance.
 Poor management may put uncertainty on the efficiency, honesty, and openness of an
organization and will impact its financial health.

Cultural change
Unless the taxpayer undergoes bank collapse, the taxpayer has the right to expect the banks to
follow even greater expectations and has the right to expect those that fail to reach the
requirements to be kept responsible. Rich bankers lost all their wealth in 1929 and some took their
lives. Some wealthy bankers lost their employment in 2008, some lost a good deal of income, but
the wealthiest remained wealthy in total. Very few have been left accountable. The impression was
that while huge gains to be gained were privatized for many in the finance industry as something
went bad, the loss and the repercussions for us all themselves remain nationalized.

The lack of social discipline and bad society is deemed core factors for Lehman Brothers' failure, the
financial crisis, and the subsequent behavior controversies, including LIBOR and FX. The Senior
Managers and Training Regulations, SM&CR regulations, and the community emphasis have been
adopted to further overcome such shortcomings. Both of the SM&CR and the whistleblowing
systems appear to have made major strides in coping with the question about who is kept
accountable: the SM&CR clarifies the senior management are liable for flaws whereas
whistleblowing attempts at disguising the secret defects. However, these interventions have not
dramatically changed the stance of what behavior causes enforcement: the nebulous principles of
"reasonableness," "history" and "language from above" tend to be used by individuals and
organizations to determine how to behave.

Remuneration
Remuneration concerns and benefits are strongly related, especially in the view of the public, to
community and personal responsibility. Due to concerns that compensation agreements promoted
unnecessary risk-taking which led to the crisis and incentives loss in previous societies, the crisis led
straight to a public review of executive pay and bonus agreements. We have since seen substantial
regulation and a rising regulatory body in terms of remuneration and benefits across the financial
services industry. The UK authority, the FSA, and later FCA and PRA reacted by introducing guidelines

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on remuneration for the contracts that businesses would provide their staff in the wake of the
banking crisis. On 1 January 2010, the FSA released the initial pay manually, defining the criteria
firms that were appropriate for wages and incentives to be achieved. In the meantime, continuing
national and European reform has taken effect as a result of European Directives including, inter alia,
CRD III and IV and the AIFMD. Such changes have culminated in jurisdictional discrepancies.

The Financial Reporting Board has developed guidelines on best practice in the UK Corporate
Governance Code on the management remuneration and benefits of public companies. Three
variants of the Application have now been released: 2014, 2016, and the latest being released in July
2018. The Code provides various guidelines, including establishing an acceptable mix between fixed
pay and remuneration linked to results, calling for clawback clauses of all bonus programs, and
phasing long term reward programs.

Regulatory capital and capital adequacy

The adoption of Basel II was maybe a poor idea at the start of the financial crisis in 2007 and, as
predicted, a further adjustment to Basel's capital requirements has been prompted by the financial
crisis. Basel II.5, negotiated in 2009, preceded shortly after 2010 by new Basel III amendments. Basel
III was finished a little later – only in December of last year was the last package of modifications
introduced.

The enhancement of capital efficiency and quantity was a crucial change adopted by Basel III. While
the overall capital stood at 8% of risk-weighted securities, the share capital levels for the common
equity class 1 and Tier 1 went increased to 4.5% and 6% respectively, and the market capital levels
went entirely abolished. Basel 3 has since implemented a range of capital reserves that meet the
minimum capital needs by offering extra rates of capital. The capital accumulation tampon was set
at 2.5% and the countercyclical capital tampon was structured to differ such that the loan period and
uncertainties related to excess credit development are represented. In turn, Basel III introduces a
backstop metric named "leverage ratio" that is the ratio of Common Equity Tier 1 resources to
(unweighted) on- and off-balance sheet exposure, because it acknowledges that risk weight asset
models can not always quantify risk adequately.

Risk and scope evaluation has also enhanced. The internal market risk model methodology in the
trading book also includes a measurement of both stress-danger and value-at-risk and has updated
securitization capital treatment roles in the trading book to be more compatible with the banking
book. The CVA-risk and improvements in the capital standards for roles in OTC derivatives will now
be retained by the banks by legislation to facilitate central clearing.

The CRD IV policy bundle (with certain tweaks) was introduced in the EU in Basel III. Additional CRD
IV reforms, including the Commission recommendations to establish a prudential structure for
investment companies, are currently being introduced in the EU legislative framework in the context
of the CRD V / CRR II kit. To make further modifications (presumably CRD VI) the Commission is
reportedly considering amendments to the Basel standards by December 2017. The growth of
prudential control will proceed at a rate 10 years after the financial crisis.

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Question 4

EURO

Throughout the human experience the euro — the collective currency used by nineteen European
nations. A community of countries has never produced a whole new currency that they share. Many
idealists view this peculiar existence as a grace and as a forerunner to a prosperous potential
environment for nations to collaborate across a wider scale of economic and political decisions. A
democratic union could arise in due time, with regional parliaments granting the European
Parliament growing control to make choices for everyone. About half a century ago Europeans
started to discuss the concept of a shared currency with this view. Having a common currency will
offer more stability and national cohesion, according to their members.

There was a variety in Europe at the time. World War II damages have decreased in the past.
Another battle was rendered impossible for Europeans. They had learned to "battle meeting tables"
instead of combat. They had opened their borders to make further trade. This was not convenient at
all. Smartly speaking, they had been through the dark little too slowly put behind the shadow of two
great wars that had been waged earlier in the 20th century and learned to trust each other's will.
They were proud of their performance, for good cause.

The critical historical objective — to construct the strongest human security against the current war
in Europe — was effectively accomplished at that period. The problem was how best the room that
this peace parenthesis opened up can be used. The mission ahead was to draw on the liberal ideals
which the European people cherished. To create a free community. To encourage innovations to
succeed. To promote innovation and growth.

European leaders took another step in the dark at The Hague in December 1969, at first unknowingly
possible: to establish a common currency. The aim was to reduce the costs of trading currency for
businesses and tourists to exchange more and move further within Europe. Moreover, a common
monetary strategy in the eurozone for the European Central Bank cannot be followed by
governments of Member States. Therefore, the governments of all countries should be tax-
responsible if they are to avoid domestic inflation and encourage domestic production. Economic
strategies of the countries that use the single currency do need to be organized. Then peace will be
much more deeply founded when they learned to collaborate.

The other Euro region members and the International Monetary Fund, funded by the European
Central Bank, provided a conditional bailout for all crisis-affected countries that lacked market
access. That, though, indicated that the Protocol on the Organization of the European Economy did
not contain a provision allowing any bailouts. Until now there is cultural, economic, and legal
controversy regarding the quality of the rescue packages and their distribution. A series of structural
changes in the EU and euro region have occurred as a consequence of the crisis. Among other issues,
the SGP and the implementation of the Fiscal Compact, the introduction of the Macroeconomy
Mismatch Process and European Semesters, and the creation of the ESM and the Banking Union
(without the already political EDIS) have also been strengthened. The SGP also included national
fiscal laws and the European Deposit Insurance Scheme (EDIS).

Many tend to accept this dream, given the economic and political crises in the eurozone of the last
10 years.

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In reality, it was quite soon that the main decision-makers began to realize the risks of their plunge.
They found that the advantages of smoother European transactions are slight. What they could not
have known is an empirical theory is similar to a hypothesis as economics may get. Milton Friedman,
one of the leading economists in the 20th century, stated in a classical 1968 article that monetary
policies are mainly intended to help mitigate a macroeconomic instability – avoiding economic boom
being too large and minimizing time spent in a slump.

Monetary policy cannot help an economy improve its long-term chances of prosperity; Friedman
insisted. And here was the push: if monetary policy is incorrectly implemented, it may inflict lasting
harm and thus minimize opportunities for long-term development. Like a "big party," a confused and
poor monetary policy tossed into a system, the usual economic workings are thwarted. By pursuing
the path of fiscal integration, the members of Europe became more prone to drive monkey
wrenches through their economies by European monetary policy.

Europe's leaders could not have understood Friedman's almost theorem regarding monetary policy's
proper function and limits. They should be aware that economic prosperity cannot be brought about
in a single currency. And they were mindful of the European authorities' still having bucked Italy and
Greece economic guidelines, and therefore the economic management requirements required to
complement a common monetary policy were unlikely to be met.

Europeans always realized that the democratic gains they made were illusory. While they frequently
echoed the 'financial unity' slogan, they did realize that they should not give up their tax revenues to
support other troubled nations. You understood that there was a significant possibility of economic
disputes. And economic conflicts will contribute to political disputes. Validations of these predictions
recurred from the period the single currency was formulated in 1969 before it was adopted in 1999.
Over and over again. However, the risks have been reduced and alternatives have been deflected.

In the single currency, the underlying error was key. When eurozone leaders left their national
currencies, they lacked major political leverage. If deflation is felt in a member region, it may not
have a nominal interest that it can devalue so that its businesses can sell internationally on lower US
dollar rates to raise exports and employment. Besides, the Member State would not have a central
bank to cut interest rates to stimulate domestic spending and growth.

This structural weakness causes serious problems as soon as the economies of currency-sharing
countries vary. The standard rate set by the European Central Bank (ECB) would be too high for Italy
and too small for Germany when it comes to the Italian economy in distress when the German
economy correlates. Therefore, the economic crisis in Italy will intensify and the German economy
will gain even more traction. It is in the essence of the single currency that the shared interest rate
would rise as member economies begin to diverge.

These basic challenges, economists argued at the end of the 1960s, would require major revenue
transfers from the booming countries to the ones in dumps if the single currency will have an
advantage, little chance at all. The federal budget provides more money to nations under one nation
– a single-currency customs union, such as the US; and to states badly hit by the crisis, the people
pay lower federal taxes in contrast to states that are less severely affected by the crisis. When these
incentives are presented, no one is concerned about them, since they are valid under the existing
policy structure (the US). Besides, several US states, such as Connecticut and Delaware, are
increasingly moving heavily to places like Mississippi and West Virginia. Economists, therefore,
argued that a shared budget under a central tax authority would be appropriate for the euro to jump
into the night.

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For Europe to follow this path, it will be appropriate to move to national parliaments; primarily
money will be moved to a shared budget. An EFM accountable to a European Parliament will use
funds from a shared European budget to boost and thus raising the deterioration in a disordered
country's economy. Tax transactions would not guarantee efficiency, but this was a risky endeavor
without them.