Financial regulations, risk management and value creation in financial institutions: evidence from Europe and USA
par Agborya-Echi Agbor-Ndakaw
University of Sussex - Master of Science 2010
This study to a large extent, succeeded in establishing a relationship between financial regulations, risk management and value creation bearing in mind that these are not the only factors influencing the investment decision-making process. It was revealed in this study that financial regulations, risks management and value creation are the most influential factors influencing investors in the investment decision-making process although there are some other socio-psychological factors alongside. This study also revealed that the behavioural school of finance is in support of the observation that if the `music is playing you have to get up and dance'. Note that the risks involved and the expected return need to be clearly established first before any investment decision can be made. Therefore, it is the starting point in the investment decision making process.
CONCLUSIONS AND RECOMMENDATIONS
In this chapter, the findings and analysis in the other chapters together with the review of the existing literature brought out in chapter two will be use for conclusions and in establishing whether or not there exist a relationship between financial regulations, risk management and value creation within financial institutions. This chapter should also be able to tell whether the research questions were answered as well as confirming whether the objectives of this study were achieved. In this section of the study, some recommendations will also be made which can be helpful for future research.
This study was aimed at understanding how financial regulations, risk management and value creation together with other factors influence the investment decision-making process of financial institutions. This section of the study will examine the aims and objectives of the study as well as proving whether or not these aims and objectives were attained. This goes alongside making sure that the research questions asked at the beginning of this study have been answered. If these questions have been answered, then it justifies that the aims and objectives of this study have been attained.
In chapter two of this study, the meanings of financial regulations, risk management and value creation were explained. Also the reasons for financial regulations, risk management and value creation were brought out. In addition to that, the methods of financial regulations, risk management and value creation were brought to light. Still within the contents of chapter two, the different types of risks affecting the performance of financial institutions and how these
institutions manage these risks were explained. By implication, it is obvious that the finding was able to provide answers to all the research questions raised at the beginning of this study as well as meeting the aims and objectives of this study.
The global crisis has proven that systemic threats posed by irresponsible practices within the financial services industry can cause the collapse of the international financial system. Owing to the behavioural factors discussed above, any proposed reforms may prove insufficient to prevent excess risk-taking. Owing to the above, this study suggests the creation of a new global regulatory consensus with respect to redrawing the current model of the national as well as international financial regulations. Under the suggested model, the high risk/ high return activities will be monitored and banking institutions involved in higher risks activities would be obliged to buy excessive liquidity insurance as well as having limited access to cheap funding basis. Arguably, the combined outcome of any suggested measures would result to a safer banking industry and better customer services.
The consequences of the financial crisis on the global economy and the fragility of the global financial system have proved beyond doubts that doing much of the same is a gamble which western governments will not like to participate. Therefore this is the right time to advance regulatory reforms seeking to replace the `failed' model of the financial regulations with a new one that will be able to liberate the creative forces of the market as well as containing the social costs. The following diagram provides a summary of this study.
Figure 10: Summary
All in all, financial regulations are cushions struggling to limit investment decisions which do not comply with the law. Value creation is the primary objective of any business entity and is geared towards adding an additional value to the already existing bottom line. With all these in place, the risk management team trying to comply with the government and its financial regulations as well as creating value within its institution implies that there exist a relationship between financial regulations, risk management and value creation. The question being asked by this risk management team is whether it is actually worth taking such risks.
The diagram above tells us that the investment decision-making process within financial institutions is made possible with the combination of financial regulations, risk management, value creation and other factors (behavioural factors). Note that, any thing done within any business be it in a financial sector or elsewhere is directed towards investment decision-making as shown in the diagram above.