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Risk and regulation

Willi Brammertz

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 23 February 2010

1789

Abstract

Purpose

A regulatory wave will follow the current financial turmoil. The purpose of this paper is to warn that although new regulation is necessary, there is a danger of strangulation of the financial market which can only be avoided with a paradigm shift in the way data are collected and used.

Design/methodology/approach

The paper is based on more than 20 years of experience in the field of all types of financial analysis within banks. The idea has been laid down in a doctoral thesis which has been applied in more than 200 banks successfully, including the acceptance by regulators.

Findings

Regulators in order to be successful and to regain eye level contact with banks have to use similar techniques as used today within risk management departments or related areas. In addition, however, regulators have to enforce standards especially for the representation of financial contracts, which are called contract types (CT). This would create the long missing international financial language that can be understood by all market participants improving not only the communication between banks and regulators, but also inside the banking sector and the investor community. Within single banks, it would help overcoming the now prevalent silo architecture and mentality.

Practical implications

Such a standard would increase the quality of information drastically and reduce the cost in similar magnitudes not only for the regulator but also for the whole financial community as a whole. The “lemon problem” (Akerlof) responsible for much of the present problems could be drastically reduced.

Originality/value

This paper closes an important gap towards the development of an international financial language via a standardized parametric representation of financial contracts (CT) is closed.

Keywords

Citation

Brammertz, W. (2010), "Risk and regulation", Journal of Financial Regulation and Compliance, Vol. 18 No. 1, pp. 46-55. https://doi.org/10.1108/13581981011019624

Publisher

:

Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited

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