About the Programme
Researchers on this FMG research programme look at risk management and the regulation of financial institutions in light of the current financial crisis. The programme was announced by the AXA Research Fund and the London School of Economics and Political Science in June 2009.
The overall aim is to gain a better understanding of the weakness of the current financial architecture and to assess the scope for greater financial stability through governance and regulation. Over the course of the past two and a half years, the programme has filled gaps in the academic understanding of these issues, and through its dissemination activities has communicated its research to inform policy and build research collaborations.
Programme researchers are evaluating the performance of the global regulatory framework during the recent financial meltdown to identify adjustments that could decrease the risk of future crises. They have looked at the whole structure of capital standards, leverage ratios, accounting principles for bank assets and liquidity provision to the market. They have also examined the use of risk models and balance sheet information in managing risk at the level of intuitions, and for system-wide regulation. Weaknesses in an undercapitalised banking system and funding and liquidity risks inherent in the shadow banking system have been investigated. Policy work has focussed on a critique of the Basel Capital Accords and on better resolution mechanisms for prompt corrective action and the role of Central Banks.
Another strand of the research programme scrutinises the governance of banks, looking at board and ownership structure and how the top management are remunerated. This aims to increase knowledge about of the following areas: skill-set and financial knowledge of non-executive directors, the board's function when seen in conjunction with banking regulation and ultimately its impact on bank performance. The work has shed new light on the importance of the independence of bank boards, the role of risk committees and risk officers in controlling risk and the impact of executive compensation on bank performance. Other areas that have also been examined include high-powered incentive pay, the limited penalties when something goes wrong and how this encourages excessive risk taking by financial institutions.
Since January 2012, this Research Programme has become part of the FMG Research Programme Financial Regulation and Risk Management.
Min Park (FMG and Department of Management)