Corporate Governance

Group Falls Short In Solving Financial Crisis

By Fei-Lu Qian

A group consisting of so called experts from some of the top financial institutions such as HSBC, Lehman Brothers, JP Morgan Chase, and Bank of America, has just released a 160 page report entitled, ?Containing Systemic Risk: The Road to Reform.? The purpose of the group was to find constructive ways to address the current market crisis.

The group focused on the following key areas:

1. A reconsideration of the standards for consolidation under US GAAP of entities currently off-balance sheet coming on-balance sheet;
2. Measures to better understand and manage high-risk financial instruments;
3. Significant enhancements to risk monitoring and management; and
4. A series of sweeping measures to enhance the resiliency of financial markets generally and the credit markets in particular, with a special emphasis on OTC derivatives and credit default swaps.

As part of its findings, the report recommends that high risk complex financial instruments be sold only to sophisticated investors and there should be improvements in the way trade confirmations are processed.  While the group blames the current credit crisis on excess liquidity, mispricing of credit risks, and misunderstanding of complex financial instruments such as asset-backed commercial paper, auction rate securities and collateralized debt obligations, the group falls short in criticizing themselves for their own contributions to the current financial crisis. No surprise.

Full post as published by PomTalk on August 08, 2008 (boomark / email).