Co-operative and competitive enforced self regulation: the role of governments, private actors and banks in corporate responsibility

Ojo, Marianne (2010): Co-operative and competitive enforced self regulation: the role of governments, private actors and banks in corporate responsibility. Forthcoming in: Journal of Financial Regulation and Compliance , Vol. 19, No. 2 (May 2011)

Abstract

In considering why practices which stimulate incentives for private agents to exert corporate control should be encouraged, this paper highlights criticisms attributed to government control of banks. However the theory relating to the “helping hand” view of government is advanced as having a fundamental role in the regulation and supervision of banks. Furthermore, governments have a vital role to play in corporate responsibility and regulation given the fact that banks are costly and difficult to monitor – this being principally attributed to the possibility that private agents will lack required incentives or the ability to supervise banks. Through its supervision of banks, governments also assume an important role where matters related to the fostering of accountability are concerned – not only because banks may have the power to affect firm performance, but also because some private agents are not able to afford internal monitoring mechanisms.

Through the Enforced Self Regulation model, the paper attempts to highlight the role played by government in the direct monitoring of firms. In proposing the Co-operative and Competitive Enforced Self Regulation model, it attempts to draw attention to the fact that although such a model is based on a combination of already existing models and theories, the absence of effective enforcement mechanisms will restrict the maximisation potential of such a model.

The primary theme of the paper relates to how corporate responsibility and accountability could be fostered through monitoring and the involvement of governments in the regulation of firms. It illustrates how structures which operate in various systems, namely, stock market economies and universal banking systems, function (and attempt) to address gaps which may arise as a result of lack of adequate mechanisms of accountability. Furthermore it draws attention to the impact of asymmetric information (generally and in these systems), on levels of monitoring procedures and how conflicts of interests which could arise between banks and their shareholders, or between governments and those firms being regulated by the regulator, could be addressed.

• Item Type: MPRA Paper
• Language: English
• Keywords: accountability; asymmetric information; universal banking; regulation; regulatory capture; government
• Subjects: K - Law and Economics > K2 - Regulation and Business Law; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G3 - Corporate Finance and Governance; A - General Economics and Teaching > A1 - General Economics > A10 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance

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