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Corporate Governance in the Banking Sector - ebook/pdf
Corporate Governance in the Banking Sector - ebook/pdf
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Wydawca: Wydawnictwo Uniwersytetu Łódzkiego Język publikacji: Angielski
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The scientific editor and co-authors of this book have undertaken a very ambitious and difficult task. It is not easy to examine developments in the banking and financial sectors from the holistic perspective, which combines the approach of institutional and law economics. The co-authors of the book have undertaken this task in a highly commendable manner. The result is an excellent monograph, the contents of which constitute a very important voice in the debate on regulation of the banking sector and corporate governance. The advantage of the book is that it was prepared in English, which is an important factor in promoting the works of the co-authors abroad. The book makes for thought-provoking, useful reading, both for researchers and students of economics, as well as lawyers dealing with regulations in the financial sector, policy-makers, and journalists. The book that we would like to recommend to you refers to current developments observed in both the Polish and global economy. It is one of the first titles on the Polish market dedicated to assessment of the role of mechanisms of corporate governance in the banking sector.

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Piotr Urbanek – Department of Institutional Economic, Faculty of Economics and Sociology University of Łódź, 90-214 Łódź, Rewolucji 1905 r. 41/43 Str. REVIEWER Sławomir J. Bukowski TYPESETTING Tadeusz Wejchert COVER DESIGN Barbara Grzejszczak © Copyright by Uniwersytet Łódzki, Łódź 2013 First Edition. W.06376.13.0.K Łódź University Press 90-131 Łódź, Lindleya 8 e-mail: phone (42) 665 58 63, faks (42) 665 58 62 ISBN (wersja drukowana) 978-83-7525-976-6 ISBN (ebook) 978-83-7969-176-0 3 Table of Contents Introduction Piotr Urbanek – Corporate Governance in the banking sector: Lessons from the fi nancial crisis ........................................................................................ 5 Section 1. Czesław Mesjasz, Wojciech Rogowski – Defi nitions of fi nancial stability ... 13 Section 2. Emilia Klepczarek – Soft law as a factor stabilizing the fi nancial system ..... 37 Section 3. Monika Marcinkowska – New order in banking ...............................................55 Section 4. Krzysztof Misiołek – Determinants of corporate governance in banks .......... 71 Section 5. Agnieszka Słomka-Gołębiowska – Banks in Poland in the face of new regulations on executive remuneration ............................................................. 83 Section 6. Agata Wieczorek – Independent supervisory board members in Polish public banks ..................................................................................................... 105 Section 7. Krzysztof Postrach – Should Polish banks be domesticated? ....................... 127 Section 8. Piotr Masiukiewicz – Receivership in banking: Theory and practice .......... 141 Section 9. Magdalena Jerzemowska – The main bank system as part of Japanese corporate governance ...................................................................................... 161 4 5 Piotr Urbanek* INTRODUCTION CORPORATE GOVERNANCE IN THE BANKING SECTOR: LESSONS FROM THE FINANCIAL CRISIS The fi nancial crisis, symbolized by the collapse of the Lehman Brothers Bank, once again gave rise to discussion about the standards of corporate governance. This has been explicitly included in the preamble to the Shareholder Bill of Rights Act of 2009, adopted by the United States Senate, which states, inter alia, that: “... among the central causes of the fi nancial and economic crises that the United States faces today has been a widespread failure of corporate governance.” [The Library of Congress, 2009]. Hawley et al. [2011, p.3] support such opinion ar- guing that “…the current fi nancial crisis has, as a part of its origins, a variety of corporate governance failures”. However, it seems that such a categorical assessment of the causes of the current crisis is debatable. There are several threads in the current debate on the subject. First, it is emphasized that in the early twenty-fi rst century, in response to pathological practices and corporate crimes occurring in major U.S. and Euro- pean corporations, major reforms of corporate governance have been undertaken. Among the areas of corporate governance in which far-reaching changes have been introduced one fi nds: the standards of fi nancial reporting and fi nancial au- dit, remuneration policy for corporate management, principles for the functioning of company boards, the requirements for high transparency, better protection of the rights of minority shareholders, the guidelines for institutional investors, the new regulations relating to the corporate market control, and many others. These changes have created a solid foundation which has signifi cantly raised the quality of intra-corporate relationships and improved the functioning of the external mar- ket governance mechanisms. Such corporate governance reforms have fostered attitudes towards enhancing accountability and responsibility. In this context, the implementation of existing standards may be the most important issue of the effi - ciency of corporate governance. * University of Lodz 6 Piotr Urbanek There are also opinions that the new standards and institutions of corporate gov- ernance developed in this period have proved ineffective in face of the threats that have emerged in the fi nancial services sector. They ask: Why have fi nancial institu- tions turned out to be resistant to the new regulations of corporate governance? How did it happen that, in light of the fi nancial crisis, banks have been involved as both actors and victims? Why some fi nancial institutions have been deeply affected by the crisis while others have not? The reforms of early in this century were based on the assumption that the new mechanisms of governance should be versatile enough that their application should extend to all corporations, regardless of their specifi c charac- teristics and the sector in which they operate. The crisis has shown that they are not suitable for the control and monitoring of the new business model of banks, where risk management and corporate governance are becoming key factors and gover- nance effi ciency should be assessed to a greater extent from the perspective of the fi nancial stability of the sector as a whole than from the perspective of the effi ciency of the institutions within the sector. There are also more radical views [Sun et al. 2011, p.4]. The proponents of this approach believe that the weaknesses of corporate governance lie not only in the fact that existing effective standards are not properly implemented and are not adapted to the sector’s specifi city, but that the current fi nancial crisis and the failure of corporate governance prove a fundamental systemic failure of the par- adigms of the invisible hand of market and of the visible hand of management. If this statement is correct, one should restore some basic foundations of market economy, such as shareholder primacy, profi t maximization, rational self-interests of human behaviour, effi cient markets for corporate control, etc. In our opinion the second view in the above debate is the most reasonable. New standards of corporate governance have effectively reduced ineffi cient busi- ness practices occurring earlier in the largest corporations. At the same time, one can point to several factors that have hindered or prevented their implementation in the fi nancial sector institutions. An important cause of dysfunction of govern- ance has been the lack of precision of many standards, which made it possible for the fi nancial institutions to interpret them too broadly. Often, the use of the standards was only of a purely formal nature and lacked the methods to assess their actual implementation. The responsibility of the institutions supervising and monitoring the fi nancial markets with respect to their implementation of the stand- ards has not been specifi ed. In many countries, the new standards of corporate governance have not taken the form of normative acts, mandatory for all entities, but rather the form of recommendations of international institutions and sectoral regulations - codes of good practice - applicable only to public companies. Above Corporate governance in the banking sector: Lessons from the fi nancial crisis 7 all, there were no provisions designed specifi cally for the fi nancial sector, espe- cially for banks, i.e. no provisions which would take into account the specifi c nature of corporate governance in the banking sector. This was the result of many factors: systemic risk, the scale and nature of operations, relationships between entities in the banking sector, innovative fi nan- cial instruments, the complex ownership and control structure in large fi nancial groups, and rapid changes in the business models of fi nancial institutions. The “agency problem” found in private corporations concerns, in the case of banks, the specifi c relationships and confl icts of interest between shareholders and depos- itors. This creates an additional dimension when compared to other corporations, because banks are institutions of public trust. The relationship between the entities of the fi nancial sector and the complex ownership and control structures in large fi nancial groups increase the systemic risk associated with the operations carried out in the banking sector. One consequence is that the market mechanism of cor- porate governance, involving the removal of ineffi cient entities by the mechanism of mergers, acquisitions, and bankruptcies, is less effective in the case of large fi nancial institutions. Another distinguishing feature of governance in the banking sector is the duality of the roles of banks, which may at same time be shareholders and lenders for the same entities. This can lead to a situation where the interests of banks, as lenders, are contrary to the interests of other shareholders and compa- nies. The specifi city of corporate governance in banks is also conditioned by the very nature of the banking business. This is refl ected in the components, structure, and risk of banks’ assets, as well as in the sources of their funding. One can identify many areas of banks’ operations in which gaps in the pro- cedures of corporate governance became particularly evident. These include: re- muneration policy for managers, supervision performed by the boards of banks, passive shareholders, and the activities of credit rating agencies. There are re- lationships between these areas, but the dysfunctionalities associated with risk management constitute the most important bond that unites them. Risk manage- ment in banks determines their economic results and their chances for commercial survival and development. The key issues include constant identifi cation, assessment, measurement, and monitoring of risks. Risk management is so important in managing banks that the solution to this problem cannot be limited to the internal bank procedures that make up the internal mechanism of corporate governance. Legal and environmen- tal standards, set by international institutions supervising the fi nancial sector and by national regulators, should constitute a complementary mechanism supporting the risk management process. 8 Piotr Urbanek The book you are holding in your hands can be regarded as a voice in the debate about the search for effective standards of corporate governance in the banking sector. Its dominant theme is the current fi nancial crisis, presented pri- marily from the perspective of developments in the fi nancial markets and the consequent implications for efforts to reform corporate governance mechanisms. Particular attention is devoted to the analysis of corporate governance in the Pol- ish banking sector, which was among the least affected by the global fi nancial crisis. The fi nancial stability of Polish banks was not threatened and direct in- tervention by the state was not necessary. There was no loss of confi dence in the fi nancial market, which could have resulted in liquidity problems. This relatively good situation of the Polish banking sector raises the natural question about the causes which led to its position. If one of the main causes of the current cri- sis was banks’ failure to comply with the principles of corporate governance, it seems interesting to assess the quality of supervisory procedures applied by Polish banks. The book consists of nine chapters. In the fi rst chapter Cz. Mesjasz and W. Ro- gowski defi ne the concept of fi nancial stability in terms of key research issues in the book. As they point out “... it is commonly agreed that relatively unambiguous and precise defi nitions and interpretations of the concept of fi nancial stability have not been elaborated yet ...”. And further that “It may be treated as a paradox that so many institutions and people emphasize the signifi cance of the term, which is so poorly defi ned ...”. The authors do not usurp the right to effectively fi ll in this research gap. At the same time they conclude that “…the defi nitions (of fi - nancial stability) can be decomposed into dimensions refl ecting characteristics of the markets and criteria of their assessment, characteristics of the institutions and criteria of their assessment, and relations between the markets and the institu- tions – norms and activities…”. Such an approach can signifi cantly facilitate the examination of the relationships between different concepts of fi nancial stability and corporate governance. A new regulatory tool, which is beginning to play an important role as a factor stabilizing the fi nancial system, is so-called ‘soft law’, i.e. codes of good practice. E. Klepczarek indicates in her article that soft law instruments are commonly used in business practice and have a signifi cant impact on the functioning of en- tities in the fi nancial system. Codes of good practice contribute to systematizing, organizing and clarifying requirements in terms of ethics, enhancing mutual trust between market participants. In this way they enforce the use of higher standards in services rendered by the banks. In addition to the many advantages of this reg- ulatory solution, her article also highlights the risks involved with it, including in Corporate governance in the banking sector: Lessons from the fi nancial crisis 9 particular the use of them as a purely an image-building move rather than a real attempt to implement pro-consumer attitudes. The systemic failure in the supervision of banks, exposed by the current fi nan- cial crisis and ensuing attempts to reform the system, form the subject of M. Mar- cinkowska’s considerations in the chapter on the new corporate governance in banking. She adopts the thesis that “... the fi nancial system is as strong as its gov- ernance practices, the fi nancial stability of its institutions, and the effectiveness of its market infrastructure. The creation and application of good governance practic- es is the joint responsibility of market regulators and market participants…” This indicates that the core elements of an improved, stable and responsible fi nancial system should include an effective regulatory regime, which must be supported by high management standards and values as a part of banks’ corporate culture. This research topic is continued by K. Misiołek in the subsequent paper. He examines corporate governance in banks from two perspectives. First, banks are public institutions which require effective legal, institutional, and customary foundations. But modern banks also take into account in their actions the social and fi nancial models of corporate operations. These models must be followed by proper organizational structures and procedures, supported by an adequate corpo- rate culture ensuring appropriate standards and by incentives for professional and responsible conduct, which is essential for good governance. Executive compensation policy in the fi nancial sector institutions is often re- garded as one of the key factors that led to the current fi nancial crisis. The system- ic dysfunctions in fi nancial corporations revealed by the current fi nancial crisis have shown the need for far-reaching reforms. In the subsequent chapter of this monograph, A. Słomka-Gołębiowska compares recent recommendations of inter- national organizations to regulate executive pay in the fi nancial services industry with legal initiatives introduced in Poland. In the second part of her article she assesses whether the new legal rules have a signifi cant impact on the structure of the executive compensation in Polish public banks. The independence of supervisory board members is an institutional solution which signifi cantly affects the executive compensation policy in banks. The obli- gation to appoint such persons to serve on the board results from, among others, codes of good practice. A. Wieczorek analyzes the extent to which the banking companies listed on the Warsaw Stock Exchange (WSE) observe the regulations concerning the appointment of independent supervisory board members. She also tries to determine whether the independent board members are appropriately ed- ucated and have the proper qualifi cations to perform their tasks on supervisory boards. 10 Piotr Urbanek There are two key features of the Polish banking sector. First, ownership and control of banks in Poland are very concentrated, and second, most banks are controlled by foreign strategic investors which are owned by global fi nancial groups. K. Postrach raises the question, formulated in the next paper, whether the current ownership structure of banks operating in Poland is benefi cial for the Polish economy and whether there is an alternative solution to this situation. He concludes that, “…it would be advisable to request relevant institutions (the Pol- ish Financial Supervision Authority, the National Bank of Poland, and the gov- ernment) to increase the share of locally controlled banks in the assets of the Polish banking sector. This process can be described as the domestication of banks.” One of the major causes of bankruptcies is dysfunctions in ownership super- vision, including insuffi cient use of an early warning system. Business practice provides a lot of evidence in this regard, but the latest international fi nancial crisis is a real laboratory, full of examples of the lack of such supervision. P. Masiuk- iewicz indicates in his article that receivership management is an effective legal and managerial tool for the rehabilitation of banks, but regulations in this fi eld are insuffi cient in Poland. The last chapter of the book presents the main bank system, which determines relationships in the process of corporate governance between companies and insti- tutions in the fi nancial sector in Japan. M. Jerzemowska in her article points to the origins and main characteristics of this specifi c institutional arrangement, which differs substantially from the Anglo-American model. The confrontation of these two different models of corporate governance does not lead to a clear-cut assess- ment concerning which of them ensures better effi ciency of corporate governance. The book that we would like to recommend to you refers to current develop- ments observed in both the Polish and global economy. It is one of the fi rst titles on the Polish market dedicated to assessment of the role of mechanisms of cor- porate governance in the banking sector. These developments increase the need for reliable, systematic knowledge on the subject. We hope that the articles in this book illustrate, in an original way, many of these developments. Where it was not possible to formulate clear assessments and answers, the threads elaborated in this book may be a valuable contribution to further in-depth discussion between academia and business. Corporate governance in the banking sector: Lessons from the fi nancial crisis 11 References 1. Hawley, J.P., Kamath, S.J., and Williams, T. 2011, Corporate Governance Failures. The Role of Institutional Investors in the Global Financial Crisis, University of Pennsylvania Press, Philadelphia. 2. Sun, W. Steward, J. , and Pollard D. 2011. Corporate Governance and the Glo- bal Financial Crisis. International Perspectives, University Cambridge Press. 3. The Library of Congress 2009. Shareholder Bill of Rights Act of 2009, S. 1074. 12 13 Czesław Mesjasz*, Wojciech Rogowski** CHAPTER 1 DEFINITIONS OF FINANCIAL STABILITY “Stability, that much overburdened word with unstabilized defi nition”1 Introduction Any survey of the literature in fi nance and banking leads to a conclusion that a state of affairs described as “fi nancial stability” is undoubtedly an important idea for the theory and practice in those areas. At the same time, it is commonly agreed that relatively unambiguous and precise defi nitions and interpretations of the concept of fi nancial stability have not been elaborated yet. It may be argued that, with a few exceptions, the works by F. Mishkin [1991, 1999], and fi rst and foremost, Schinasi [2004], plus several more recent works by M. Čihák et al. [2006, 2012], those who discuss fi nancial stability do not have any clear vision what that term may mean. The utterance “fi nancial stability” is usually applied as an interpretation of some results in purely “technical” consid- erations, when the term “risk” alone seems to be irrelevant or not too fashionable [Beck, 1999; Luhmann, 1991]2. At the same time fi nancial stability is applied as a kind of “mantra” or “trendy buzzword” in the language of grand theories and in policy making. It may be treated as a paradox that so many institutions and people emphasize signifi cance of the term, which is so poorly defi ned. This observation can be strengthened by the fact that in majority of consid- erations on fi nancial stability no links are made to the meaning of such ideas as equilibrium and stability in economics, and in fi nance, not mentioning systems thinking. In addition, such issues as predictability/prediction and possible control * University of Economics, Cracow, Poland. ** Economic Institute of National Bank of Poland, Warsaw School of Economics, Warsaw, Poland, Allerhand Institute, Cracow, Poland. 1 See: Bellman [1953]; Ashby [1963, p.73]. 2 Applications of the term “risk” in the “Risk Society” require separate considerations due to multi- tude of its interpretations, also in quantitative formal considerations. 14 Czesław Mesjasz, Wojciech Rogowski of fi nancial systems/markets/phenomena are absent in most of the works in which the notion “fi nancial stability” is referred to. The explanation of such a situation is stemming from the fact that the term fi nancial stability should be treated as metaphor and/or analogy. Knowing the pat- terns how the meaning of the metaphor of fi nancial stability is “emerging” in economic discourse, it should be possible to make an attempt to defi ne it in a way which could be helpful both for possible further operationalizations and for more precise interpretations in theory and in policy making. Applications of analogies and metaphors taken from physics, natural sciences and engineering have been an important factor in development of social sciences and economics. First and foremost, they are used to describe phenomena in one area with concepts drawn from another discipline e.g. the equilibrium of various physical systems – mechanic, thermodynamic, serving as a foundation of the con- cept of economic equilibrium. If they are employed as a tool for analysis, i.e. to describe causal relationships, predictions, or as predictive or normative catego- ries, they always have to be defi ned in a more precise way than it is required for descriptive purposes. The importance of this challenge becomes even more vital when such concepts enter the language of policy making. The disagreement and the absence of precision in defi ning may lead to the situation that the term “fi nancial stability” becomes a carrier of many positive and, at the same time, declarative features of fi nance at national and international level, but with a very low cognitive value translating into a limited applicability. Con- sidering the above, the concept of fi nancial stability gains a very positive connota- tion, although it may have different meaning for theorists and for practitioners in day-to-day practice. This may cause the distortions in the communication process- es between the various institutions investigating the problem area. Furthermore, it may restrict the usefulness of the term “fi nancial stability”, if not undermining the very reasons for its use in theory and policy making. . The aim of the paper is to elaborate a preliminary survey of defi nitions and in- terpretations of fi nancial stability. It may be asserted that it will never be possible to elaborate more precise explicit, “working” defi nitions of “fi nancial stability”. Perhaps some operationalizations can be achievable. Instead, it is only possible to make an inventory of applications and interpretations of the term fi nancial stabil- ity in the language of theory and policy making in fi nance at the macroeconomic level. Having such an inventory it will be possible to elaborate a typology of in- terpretations of fi nancial stability and study in depth the diverse meanings of that utterance. Defi nitions of fi nancial stability 15 1. Stability in economics and social sciences 1.1. Stability in systems thinking The concepts of equilibrium and stability were introduced fi rstly in mathe- matics and later were transferred to other areas – physics, biology, automatic con- trol, etc. Subsequently, they have also become the key concepts of economics and social sciences. As to achieve the broadest possible scope of the applications of the concepts of equilibrium and stability, a reference to systems thinking can be proposed3. It must be also underlined that the concepts taken from systems thinking can be used in economics and in social sciences either as mathematical models of different scope of relevance to the real situation or as metaphors and/or analogies. The concept of stability is always analyzed in reference to an idea of equi- librium. In traditional systems thinking based upon fi rst order cybernetics and/or theory of automatic control systems only the stable equilibria are predominantly valuable subject of investigation. Mirroring the aforementioned areas of existence of equilibrium, in the discus- sion on system stability two important issues have to be distinguished: ● stability of equilibrium (equilibria), ● stability of the system treated as an entity. The origins of discussion on stability in systems thinking can be traced in the works of Bellman whose concepts, developing the ideas of Lyapunov and Poin- care proved applicable in mathematical modelling of automatic control systems [Bellman, 1953]. In cybernetics stability is regarded as positive state even as an increased plausibility of survival, although with some exceptions [Ashby, 1963, p. 81]. Methods used to analyse stability are based upon differential equations and difference equations, depending whether the phenomena are of continuous or discrete character. It can be thus summarized that in any defi nitions of stability relating to a sys- tem understood as a “set of elements standing in interaction” the following issues should be taken into account: 1. System identifi ed by an observer described with a set of characteristics (parameters). 2. Patterns of macro- and microscopic of dynamics of the systems described with the use of the characteristics. 3. Infl uence of the dynamics of the parameters upon the entire system. 3 Broadly defi ned system thinking includes also cybernetics and complex systems studies. Relations between systems thinking and cybernetics were discussed in Mesjasz [1988]; Mesjasz [2010]. 16 Czesław Mesjasz, Wojciech Rogowski 4. States of equilibrium for the parameters 5. Mechanisms (internal or external) of restoring equilibrium, i.e. mechanisms of achieving stability of parameters. 6. Relation between stability of parameters and of the entire system. It is obvious that the links between stability of characteristics and stability of entire system may have a very complex character. However, in some cases a limited set of parameters and sometimes even a single representative parameter, which permit to describe macroscopic dynamics of entire system, e.g. entropy in thermodynamics. 1.2. Stability in economics The term stability used in social sciences and in economics, including ob- viously fi nancial stability, is applied either as a metaphor, metonymy, simile or analogy. In order to simplify the considerations it can be assumed that stability can be treated as a metaphor and other forms of transfer of meaning should be also considered in some cases4. Therefore it can be viewed as an idea brought to so- cial sciences and economics from natural sciences, predominantly from physics. Such a phenomenon is not rare in history in economic thought [Mirowski, 1989; Mirowski, 1994]. Metaphors in social sciences can be used for the following approaches: de- scriptive, explanatory, predictive, normative, prescriptive, regulatory, retrospec- tive, retrodictive. The notion stability can be associated with mathematics and physics, or in a somehow broader sense, with systems thinking, systems approach, whatever we may call it. It can be also easily traced in history of economic thought that analogies and metaphors taken from “science” (systems thinking) acquire a specifi c normative sense. Due to their origins in „rationalist” disciplines - math- ematics, physics, chemistry and biology they are treated as objective and scientifi c in a rationalist sense. Thus their applications, in addition to enhanced explanative validity, by defi nition obtain supplemental, „sound”, normative - predictive and prescriptive, legit imacy in any debate on social issues. Consequently, in those applications, but not only, their metaphoric sense is neglected or misinterpreted. There are also other kinds of stability applicable in economics. In addition to structural stability, the divide between static and dynamic stability should be men- tioned. Static stability indicates whether the economic forces that exert an impact on the system tend to make it move towards the equilibrium point, but does not ex- plain the actual path of the system nor whether the system converges over time to 4 Metaphors are widely discussed in: Ortony [1979]; Tsoukas [1991]; Lakoff and Johnson [1995]; Morgan [1998]. Defi nitions of fi nancial stability 17 the equilibrium point. The dynamic stability, based on functional analysis is more relevant to economic problems. In economic studies an already mentioned idea of orbitally stable behavior of the systems with periodic motion can be applied. Other types of stability useful in economic studies are distinguished according to the methods of its analysis - local and global stability study as well as “built-in” and “superimposed” dynamic stability analysis [Eatwell et al., 1987, p. 462]. Looking from the point of view systems thinking it may be stated that eco- nomic systems (organizations) can also behave in a way which could be captured with already mentioned idea of ultrastability. In such case in modern writings in economics and management an idea of learning organization (system) can be applied. The cybernetical interpretation of stability has an impact on the new institu- tionalist economics, where stability is thematized as the stability of institutional arrangements. As D. North puts it: “A basic function of institutions is to pro- vide stability and continuity by dampening the effects of relative price changes” [North, 1997]. Such an approach creates additional challenge since institutions are also changeable so the universal value is undermined. The concept of stability in stability policy opens the possibility for measuring instability as the deviation from goals and targets. Even this superfi cial survey shows that stability in economics cannot be in- terpreted unequivocally. The diffi culties are rooted in discrepancies in defi ning equilibrium in economics, and subsequently, are also resulting from differing in- terpretations of stability. Preliminary assertions of stability expose its positive interpretations, similarly as in other areas of systems thinking, including social sciences. Similarly as in general considerations, stability understood as a tendency or at least expression of a tendency to remain in a steady state, cannot be treated in economics as an absolute positive and desirable state of affairs. 2. Origins of the concept of fi nancial stability Although it is commonly agreed that there is not any more or less specifi c defi nition of fi nancial stability, yet many theoreticians and policy makers claim that this concept refl ects a desired status of different kinds of fi nancial systems. The search for origins of the term fi nancial stability shows that it was emerging in policy considerations and in academic research as a consequence of disturbances of the fi nancial markets. The results of an „archeological” search for the fi rst ap- plications of the concept of fi nancial stability are of a very preliminary character.
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