Conflicts of interest and systemic risk

The financial crisis has uncovered many conflicts of interest. All of these concern regulators who are duty-bound to protect the taxpayer against malpractice. But it is now clear that some should seriously concern central bankers, as they potentially present a threat to financial stability. The auth...

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Bibliographic Details
Published in:Central Banking 2010-11, Vol.21 (2), p.81
Main Author: Chown, John
Format: Article
Language:English
Subjects:
Central banks
Conflicts of interest
Economic crisis
Efficient markets
Financial institutions
Institutional investments
Merchant banks
Privatization
Profits
Regulation
Stabilization
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Summary:The financial crisis has uncovered many conflicts of interest. All of these concern regulators who are duty-bound to protect the taxpayer against malpractice. But it is now clear that some should seriously concern central bankers, as they potentially present a threat to financial stability. The author shall look at various types of malpractice from this point of view and suggest what might be done to resolve them. There are two main types of malpractice. First, there is mis-selling by a business, or its employees, in an attempt to profit at the expense of its customers. Second, there is fraud perpetrated on a company by its controllers. Central bankers must look more closely at the growth of unsound practices. An obvious indicator of this is often excess profit. If banks are really making excess profits, there may be no problem.
ISSN:0960-6319