MARKET RISK, CORPORATE GOVERNANCE AND THE REGULATION OF FINANCIAL FIRMS
| Pages | 134-143 |
| Date | 01 February 1996 |
| DOI | https://doi.org/10.1108/eb024875 |
| Published date | 01 February 1996 |
| Author | PETER CASSON |
| Subject Matter | Accounting & finance |
MARKET RISK, CORPORATE GOVERNANCE AND THE
REGULATION OF FINANCIAL FIRMS
Received: 27th February, 1996
PETER CASSON
PETER CASSON
OBTAINED A FIRST DEGREE AND DOCTORATE
IN PSYCHOLOGY
BEFORE
WORKING FOR A
NUMBER OF
YEARS
AS
A PSYCHOLOGIST
BEFORE
BECOMING A CHARTERED
ACCOUNTANT. HE CURRENTLY LECTURES IN
ACCOUNTANCY AND FINANCE AT THE
UNIVERSITY OF SOUTHAMPTON. HE CAN BE
CONTACTED AT THE DEPARTMENT OF
ACCOUNTING AND MANAGEMENT SCIENCE.
UNIVERSITY OF SOUTHAMPTON,
SOUTHAMPTON S017 1BJ, TELEPHONE 01703
592553,
FAX
01703
593844.
ABSTRACT
The growth in derivative
activities,
and
the
change
in the way
financial
firms
con-
duct these activities, has led to the
development of
practices
within firms to
manage
risk.
These practices relate
to
both
the organisational context in which risk
management takes place, and the
measurement of market
risk.
Proposals
and
recommendations
have
been
made in
a number of
reports
in an attempt to
encourage
firms
to adopt
best
practice,
as
identified by
the Group of
Thirty,
through
public
disclosure requirements
and rides
for
determining
the amount of
regulatory
capital
to
support
trading and
derivatives
activities. The adoption of
best
practice,
together with the benefits of
increased
transparency and more appropriate
methods
for determining capital require-
ments, is seen to lead to a reduction in
systemic
risk.
This paper examines the
main proposals and recommendations
made
in the
reports.
In
particular,
the use
of market risk measurement models,
developed
for internal risk management
purposes,
for public
disclosures
of
market
risk and for
calculating regulatory capital
is
critically
examined.
INTRODUCTION
A number of reports have been pub-
lished recently in response to grow-
ing concern about the possibility of
increased systemic risk resulting from
the involvement of financial firms in
derivative activities.1 The reports
make recommendations in three
areas:
internal management of the
financial firm;2 external reporting of
derivatives activities;3-9 and, regula-
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