The investigation of the British government appointed Independent Commission on Banking regarding the Britain’s banking structure impact on financial stability raise my doubts, whether considerations to separate retail banking from the investment banking is a reasonable solution to keep financial stability.
In general competitiveness of the company depends on the capabilities to identify and satisfy the needs of customers. So, while assets risk is based on business decisions, it is more likely that not a standardize particular business model but enhanced corporate governance standards may lead to more efficient asset allocations, which generate positive NPVs and increase value of the company.
The problems with the financial stability arise from the financial risk that depends on the capital structure. It may seem that increased free cash flows from large leverage are advantageous decisions because of the interest tax shield. However, when the company uses excessive debt it increases the risk of equity and imposes financial distress costs.
Moreover, as long as asset risks are usually similar within the industry it is more important to look for more effective financial risk management tools rather than discuss the appropriate business models for financial institutions.
About Me
- Asta Pravilonytė
- Every manager can call him or herself a good strategist if he or she only works within an environment that is favorable; however, it is only in times of stress that one truly learns what one's capabilities are!
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