Tag Archives: Financial

Financial Stability Regulation — The Harvard Law School Forum on Corporate Governance

A somewhat detailed review of our current status with implemented changes.   Good read.  Small business of-interest.

Excerpt:  It may not always be the case that the most interesting time to be involved in a regulatory area is at its early stages, but I am reasonably certain it applies to the formation of a system for the regulation of systemic risk. From the standpoint of a regulator, the key challenge in these early stages is to be neither excessively self-confident about what we know about financial stability so as to produce unfortunate unintended consequences, nor excessively tentative so as to fail to take steps to counter the very real risks that do exist, in keeping with the aims stated by Congress. As I hope was apparent, that effort at balance informed my suggestions as to how we should apply the financial stability factor in our pre-merger reviews under the Bank Holding Company Act.

Read full article via Financial Stability Regulation — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Risk Modelling: Is the Response to the New Complexity Really So Simple? – Knowledge@Australian School of Business

Risk management today.  Why it is different and what is needed to manage today.  Good read.

Excerpt:  Rapidly changing global conditions have been particularly disruptive to the more precise risk management methodologies that enjoyed the high watermark of confidence levels during the period of macro-stability after World War II. At that time, extraordinarily stable conditions provided an environment that lent itself to mathematical applications and the ability to forecast with higher degrees of confidence, notes Andries Terblanche, a professor at the Australian School of Business and chair of financial services at Big Four consulting group, KPMG.

Of course, the world has changed. Significant among the financial and economic changes have been a big increase in the number of floating currencies, a significant growth in the use of derivatives, higher levels of public debt and an increase in global capital flows, aided by new technology.

Read full article via Risk Modelling: Is the Response to the New Complexity Really So Simple? – Knowledge@Australian School of Business.

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Financial vs Strategic Buyers — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch M&A.  The study provides insights into the patterns that appear to be very distinct and the probable “whys”.  Interesting read.

Excerpt:  ….. we highlight and then set out to explain the oscillating pattern of financial vs. strategic acquirers within overall merger activity. Mergers and Acquisitions occur in great waves of activity with recent troughs, for example, of only a few thousand deals in 2003 and peaks of over ten thousand deals in 1999 and 2006. Within this oscillation of activity there is another shifting pattern: the percentage of so-called financial sponsors (private equity firms) vs. strategic buyers (operating companies) seems to ebb and flow. Aggregate numbers show that the fraction of total deal value acquired by financial sponsors has varied dramatically over the last 25 years with peaks in the late 80s, 90s and the period of 2005-2007. This same pattern is true across many industries and geographies.

Any particular transaction has many factors that drive the ultimate acquirer’s willingness to pay. And many theories propose reasons why particular firms or industries may be ripe for acquisition activity. However, the broad pattern of financial sponsor activity that spans industries and geographies at a given

Read full article via Financial vs Strategic Buyers — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Does Macropru Leak? Evidence from a UK Policy Experiment — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.

Excerpt:  How can governments limit excessive and unstable credit growth? Should they raise capital requirements for banks? In our recent NBER working paper, Does Macropru Leak? Evidence from a UK Policy Experiment, we address these questions using evidence from a policy experiment in the UK. The minimum capital ratio requirements that national regulatory authorities impose on banks have two sets of objectives: (i) so-called ‘micro-prudential’ motives, to ensure the safety and soundness of individual banks; and (ii) ‘macro-prudential’ goals, especially to influence the aggregate supply of credit. Micro-prudential regulation has a long pedigree, but the focus on macro-prudential regulation has increased sharply in the wake of the global financial crisis. This sharpened focus underlies recent changes in the international regulatory regime for banks. Basel III, as the new regime is called, establishes a “countercyclical capital buffer”, under which national regulators would vary banks’ required capital-to-risk-weighted assets ratio over time, thereby helping smooth the credit cycle. For variation in minimum capital requirements to be effective in regulating the aggregate supply of credit, three conditions must be satisfied:  …

Read full article via Does Macropru Leak? Evidence from a UK Policy Experiment — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Increasing the Vulnerability of Investors — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and news-to-watch.   A discussion of the private placement rules proposed.  Financial governance

Excerpt:  The Commission considered a Congressional mandate to amend our private placement rules, allowing issuers to offer securities by means of general solicitation and general advertising, provided only that all purchasers are accredited investors.

I cannot support the proposal, because it presents a framework that is not balanced and that fails to address the acknowledged increased vulnerability of investors. In fact, there is no consideration of any of the commenters’ proposals that would have decreased investor vulnerability.

Since at least 1962, the Commission has held that general solicitation and advertising are inconsistent with private offerings of securities. When general solicitation is used, investors need access to the disclosure and other protections that registration affords. In the absence of registration, and the resulting required disclosure, general solicitation and advertising can all too readily become a tool for deception and misinformation.

Investors are the source of capital needed to create jobs and expand business. I value true capital formation and economic growth, which requires investors to have both confidence in the capital markets and access to the information needed to make good investment decisions.

Read full article via Increasing the Vulnerability of Investors — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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The SEC Punts (Again) on Financial Stability Reform — The Harvard Law School Forum on Corporate Governance

And on it goes!!!!!!!    Small business of-interest, need-to-know and news-to-watch.  Should we blame a lobbyist for an interest group or blame allowing too much leeway to lobbying groups to control based on power but not neccessarily the best interests of the public?

Excerpt:  In an all-too-familiar pattern, the SEC has backed down in the face of industry pressure and dropped a key proposal to prevent a repetition of the 2008 financial crisis. Despite valiant efforts by Chair Mary Shapiro, a divided Commission has rejected further steps toward reform of money market funds, a $3 trillion dollar financial intermediary that was at ground zero of the financial crisis and that now presents a continuing threat to financial system stability.

A powerful industry group, mutual funds and some of their clients, have persuaded three SEC Commissioners to ignore the near implosion of the money market fund sector in 2008. Here are their names, for now is an accountability moment: Luis A. Aguilar, Daniel M. Gallagher, and Troy A. Parades.

Read full article via The SEC Punts (Again) on Financial Stability Reform — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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The 5 Faces of Accountancy: Eradicating Myths and Sticking to Facts and Figures!

Guest Post by Joyce Del Rosario

Accountancy tends to be a difficult subject for even the savviest of business owners. This is why most small business owners, solo practitioners and even freelancers choose to hire an accountant to manage their finances, which is undoubtedly a good thing.

But, even if you do have an accountant to deal with pesky things like spreadsheets and progress reports, there are a few aspects of your business that you should be familiar with yourself, and understanding terms like income, expenses, assets, liabilities and equity or net worth is crucial if you want to succeed in any industry.

Too many business professionals choose to bury their head in the sand and leave the vague financial stuff for their accountants to deal with. However, no matter how good your financial advisor is, nothing takes the place of being financially literate yourself.

Here are some of the most common myths about accountancy that may be holding you back from being truly successful.

You have to be good at math to understand accounting
This is by far the most common myth about accounting and it is also the main reason that people tend to shy away from accountancy.

Of course, accountants do use math, but so do most other professions and everyone from an engineer to a salesman must have a grasp on numbers if they want their career to go anywhere.

Accounting is more about analytics and research than algebra, and you don’t have to be a mathematician to understand basic accounting principles.

It does involve some basic math like addition, subtraction, multiplication, division and the occasional formula, but you’d be hard pressed to find an accountant who does any of this without a calculator.

The bulk of accounting involves analyzing numbers in order to see what they mean for the current and future financial state of a person or company.

A tax preparer is the same as an accountant
If you think the guy preparing your taxes is the same as an accountant it could have negative repercussions for your business. While most accountants will do taxes as well, most bookkeepers and tax preparers will not maintain your accounts and give you the same financial advice that an accountant could.

Their qualifications are very different from those of an accountant, and confusing the two could cause serious problems down the line. So, just for the record, an accountant is someone who holds a degree in accounting, and nothing else will do when it comes to the future of your business.

Accounting isn’t necessary for small businesses
This is one myth that can have dire consequences for any small business. Many small business owners assume that hiring an accountant is something that only larger companies need to do.

However, thinking you can go without accounting is the same as thinking you don’t need a budget; don’t need to know what your financial state will be like in the future or have no need for any tax advantages.

No matter how small your business is, you need an accountant. You simply cannot run your business properly without knowing the state of your finances or whether or not you will report a loss at the end of the year to reduce your taxes. You also need to know about areas that you are doing poorly in and need to improve in, or your business will continue on a downward spiral.

It’s fine to pay business expenses out-of-pocket
This is a big misconception and can cause you to waste a lot of money. Your business needs its own business bank account and expenses should not be paid out of your own personal account.

Any business expenses that you have paid for from your personal reserve or salary must be noted down accordingly and careful records must be kept. In most cases, any money that you spend out of pocket for your business can be returned to you tax-free.

Without a proper business bank account, you have no way to tell whether or not your business is actually making a profit. All revenues should be paid into the business bank account and all business expenses should be paid from this same account. If you come up short, you can pay out-of-pocket, but you must take care to keep proper records so that you can get that money back.

If you are making a salary, that salary should not be paid into your business account, because it is taxable, which means you may be paying far more on taxes than you should be. Keeping your finances separate can make a huge difference.

You tell how successful your business is without accounting reports
Looks can be deceiving, and just because your business is bustling every single work day does not mean that it is doing well or making a profit. Without accounting reports, you have no way of knowing if your prices are right and whether you need to cut costs in any particular area.

Many business owners think they can focus on the practical side of the business, like keeping customers happy and getting return business, without paying attention to things like costs incurred, waste or loss. But operating in this way means that a potentially successful business can fail before it has even been given a fair chance.

Accounting reports show you where you can save money, which areas are in need of a cleanup and how things can run more efficiently as a whole in order to make the most profit possible.

Author: Joyce Del Rosario is part of the team behind Open Colleges.   It is one of Australia’s pioneer and leading providers of Accounting Courses and Bookkeeping CoursesWhen not working, Joyce enjoys blogging about health and finance.

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Money Market Fund Reform — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and opinion of-interest.  Ruling on the money market industries business as usual.

Excerpt:  Three Commissioners, constituting a majority of the Commission, have informed me that they will not support a staff proposal to reform the structure of money market funds. The proposed structural reforms were intended to reduce their susceptibility to runs, protect retail investors and lessen the need for future taxpayer bailouts.

I — together with many other regulators and commentators from both political parties and various political philosophies — consider the structural reform of money markets one of the pieces of unfinished business from the financial crisis.

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Auditors to Increase Your Financial Credibility

Accounting, finance and audit.  The article is written from the view of internal audit committee but the advice and takeaways hold true for the small business using external auditors for the role.

Excerpt: The key is communication on all sides in order to understand risks and decisions that are being recommended and approved, including with board members who are not financially oriented. Don’t wait until a meeting to communicate what is happening. The decision-making processes should be transparent, with no surprises. If you encounter dissent, it should be noted and discussed thoroughly at approval time, whether it’s from auditors or audit committee members

Read full article via How to build and run an effective audit committee to increase your financial credibility | Smart Business.

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Steering Financial Institutions Toward the High Road — The Harvard Law School Forum on Corporate Governance

Advice on decisions that affect us all.    Easy read, sort of delivered in a “down-home” style.   Small business need-to-know, of-interest, and news-to-watch.

Excerpt:  We’ve all faced business decisions that offer the opportunity to choose between taking the high road and the low road. In the banking industry, the high road offers a way to do business and to succeed over the long term by building enduring relationships; structuring profitable, win-win arrangements; and treating customers and communities as meaningful stakeholders in the bank’s work. But sometimes choosing this high road just doesn’t seem to take us where we want to go fast enough. Suddenly, the low road can seem attractive and tantalizing, and it may offer short-term rewards that can be hard to resist. Taking the low road can be an exhilarating and profitable ride for a while, but it almost always leads to disaster and wreckage, and, when banks are the vehicle, taking the low road can cause significant economic and financial problems. As we’ve experienced over the last several years, when your car is wrecked, it’s a long walk home.

Read full article via Steering Financial Institutions Toward the High Road — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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