Power and Influence in the US Investment Banking Industry – a Case Study of Lehman Brothers (2024)

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Bank Corporate Governance: Failures and Reforms

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Bank corporate governance has become a heated topic of discussion since the great depression of 1929 because of the unique nature of banking business. After the recent Global Financial Crisis of 2008 (GFC), evidence of the systematic effects of bank practices has been widespread in the global economy. Traditionally, banks have had a bad reputation of handling investor and depositor funds and it was an eventuality that they would become a scapegoat to the crisis. Questions on bank governance resonated throughout economies around the world and people through their legislative representatives sought to revisit bank governance and regulation as this was a sequel to the great depression of 1929. This thesis provides some answers on the current state of bank corporate governance by primarily focusing on the fundamental contribution of corporate governance in the financial crisis. It identifies key failures and proves that failure in bank corporate governance played a significant contributory role in the financial crisis. It also shows that systematic risk and the interconnection of the global financial market amplified this failure by highlighting its complex and problematic nature. This Thesis bases its argument on existing empirical evidence and analyses them across the background of corporate governance mechanisms and legislations governing banks in the EU and the US. This thesis finds that weak corporate governance structures contributed to the failure of major banks and the subsequent collapse of economies around the world. It identifies systematic risk, risk management, executive compensation the agency problem and cumulation of these issues that is the moral hazard problem as the key failures in bank corporate governance. It concludes that there is room for improvement in terms of reform and regulators, should avoid reactionary legislative measures and adopt a progressive means of addressing bank corporate governance issues such as systematic risk and the moral hazard problem rather than using reactionary legislation. This thesis reasons that banking practices are unique and issues with their governance structure should be addressed from a different perspective.

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Th e global fi nancial crisis of 2008 was triggered by the subprime loan crisis in the US which resulted in the Lehman Brothers bankruptcy fi ling and bail-out of several major fi nancial institutions. Market integration meant that this crisis quickly spread to the rest of the world. Th e crisis negatively impacted both the fi nancial and real sector of Asian countries. To dampen the eff ect of this imported crisis, authorities in this region reacted swiftly through accommodating monetary policy and signifi cant fi scal spending. Other macro-prudential measures were also adopted. Prior to the crisis, both the fi nancial and real sectors in Asian countries were robust and together with the swift government response, the economy of the Asian countries recovered within four quarters. However, the accommodating policies also resulted in imported infl ation as a result of strong capital infl ow (both FDIs and Hot Money). Several countries experienced extremely strong housing price apprec...

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Power and Influence in the US Investment Banking Industry – a Case Study of Lehman Brothers (2024)
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