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Corporate Governance in the Financial Sector - Coursework Example

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The paper "Corporate Governance in the Financial Sector" states that since investment banks offering mortgages are involved in the issuance of the securities it is therefore critical for them to ensure that they follow the principles of transparency, objectivity as well as the equity. …
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Corporate Governance in the Financial Sector
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Download file to see previous pages Capitalism is a system which advocates the competition as the basis of exploiting the economic resources of a country. However, this competition faces organizations to often engage themselves in activities which may be rather illegal or detrimental to the interests of the stakeholders. Corporate governance, therefore, ensures that the firms and managers do not engage in activities which can be detrimental to the interests of the shareholders.
The modern history of corporate governance starts after the 1970s as there was a general increase in the awareness of the shareholders for their right to have more roles in the overall affairs of the businesses in which they invested. The issue became more critical during the 1990s owing to the firing of the CEOs of the major firms including IBM thus giving rise to the question of how well the firms are managed. The Bankruptcies of the organizations like Enron and WorldCom further renewed the interest and also resulted in the promulgation of the regulations such as Sarbanes Oxley.
The recent economic meltdown has raised certain important questions over the state of corporate governance in the financial sector. The failure of the organizations such as JP Morgan and AIG indicates that the corporate governance mechanism was not entirely effective in preventing such large scale failure of the financial institutions. The compensation issues that emerged as a result of the failure of the firms like RBS as what was revealed was nothing more than extraordinary as for as the corporate governance was concerned in the financial sector.
A brief historical look at the history of corporate failure in the banking industry, in general, would indicate that the banking is more prone to the external shocks and as such if prudent lending practices are not applied, there are chances that the banks may fail. Similarly, in case of investment banking, there are greater chances that the firms offering such services may be prone to the cyclical behavior of the activity as investment banking activity is believed to be picking up when the economic conditions are improving and tend to show the decline when economic activity decline.  ...Download file to see next pagesRead More
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