Is banking lobbying in rating agencies, moral hazard in investment banking and ... can be the main factor in the next global financial crisis?

The topic is important so I invite you to the discussion.

Following answers.

Good question. I believe that regarding the ethical behavior of financial institutions there has been a remarkable improvement during the last ten years. However, those companies, banks or public institutions that have not evolved in this sense will be guilty and are condemned to be affected by the consequences of the next financial crisis.

The above discussion inspired me to the following considerations:

Is the importance of the psychology of financial markets and behavioral economics in the securities markets falling after the global financial crisis?

Are the investors operating in securities markets more cautious in making investment decisions after the global financial crisis, or are they more thoroughly analyzing the investment risk of investing in capital markets?

Has any of you conducted research aimed at identifying possible changes in the significance of the psychology of financial markets and behavioral economics in the capital markets, including securities markets after the global financial crisis of 2008?

If research shows that the importance of the psychology of financial markets and behavioral economics on the capital markets is decreasing, what is it mainly determined?

Is this the result of post-crisis higher awareness of investment risk among investors, or also changes in the structure of dominant segments of investors operating on capital markets, or is it also the result of the increase in the number of transactions conducted by computerized transaction systems?

Please reply. I invite you to the discussion

In addition, I note the interesting discussion inspired me to the following considerations:

Is the situation on the stock exchange markets really correlated with the macroeconomics of the entire economy?

In the long-term period, this correlation is significant. On the other hand, however, the importance of state intervention implemented through monetary policy pursued by the central banking and through the budgetary policy pursued by the ministerial bodies appointed for this purpose within the state administration is growing. The central banks in many countries, including the Federal Reserve Bank and the European Central Bank after the outbreak of the global financial crisis in the autumn of 2008, have applied particularly significant interventionist monetary policy. I researched this issue and published scientific publications on this topic.

I invite you to the discussion

The issue of the impact of monetary policy on the stability of financial systems in the context of the global financial crisis is described in the publication:

Article ACTIVATING INTERVENTIONIST MONETARY POLICY OF THE EUROPEAN C...

I invite you to discussion and cooperation.

Greetings

The issues of risk management in the context of determinants of the global financial crisis are described in the publications:

Article Determinants of credit risk management in the context of the...

Article Importance and implementation of improvement process of prud...

Article Anti-crisis state intervention and created in media images o...

Article THE SHADOW BANKING AS AN EXAMPLE OF INEFFICIENCIES IN THE FU...

I invite you to discussion and cooperation.

Greetings

Dear Friends and Colleagues of RG

Does deepening the liberalization of the rules of conducting transactions in financial markets, banking lobbying in rating agencies, moral hazard in investment banking, failure to observe prudential procedures, neglecting the methodology of creditworthiness analysis in the process of verification of potential borrowers and violation of ethics in business can be the main factor in the next global financial crisis?

And these types of factors at the transactional and procedural level were, in addition to the mild monetary policy of central banking, indicated by economists as the key determinants of generating the global financial crisis in 2008.

Do you agree with me on the matter?

Please reply

I invite you to the discussion

Best wishes

Dear Colleagues and Friends from RG,

I would like to add considerations on the following topic to the above discussion:

The growing importance of improving credit risk management processes in the context of analyzing sources of global financial crises.

The above discussion inspired me to formulate the following question:

Is the importance of improving credit risk management processes growing in the context of analyzing the sources of global financial crises?

On the basis of the above considerations and conclusions from the discussion on interesting issues discussed, I formulated the following thesis that in recent years the importance of improving credit risk management processes in the context of analyzing the sources of financial and economic crises has been growing. An important factor in the need to improve credit risk management processes was to identify the sources of the global financial crisis of 2008. Below I have described the key determinants confirming the formulated research thesis. To the above discussion I would like to add the following conclusion formulated as a summary of my previous considerations on this topic: Credit risk management and the genesis of global financial crises.

In my opinion, financial markets significantly model and discount the credit risk associated with transactions carried out in these markets. I have been researching this issue for many years and I have noticed that for some time the scale of correlation between what is happening in the real economy and the valuation of specific assets on financial markets, including capital, currency, securities and derivatives is still high. On the other hand, however, institutional, organizational, structural, functional, etc. changes that have been taking place in domestic and international financial markets since the 1970s increase the scope of investment, credit and other categories of financial and market risks during financial investment transactions and / or investing in specific assets listed on stock exchanges and other capital market segments.

Banks and investment funds operating on these markets and dominating on these markets have developed advanced models for valuation of specific categories of financial, banking, market, operational risk, etc. with many years of experience. Thanks to the developed analytics based on economic knowledge, instruments of science, quantitative estimation of various categories of economic aspects of the functioning of enterprises and financial institutions , complex risk valuation models based on large quantitative data resources, the use of business analytics verifying various categories of information on Business Intelligence research platforms, Data Science, Data Analytics, Big Data as well as statistical and probabilistic research instruments, the use of selected financial and stock market indicators globally operating banks and investment funds have the possibility of precise valuation of almost any risk category.

However, the problem is the issue of business ethics, and basically its excessive reduction from time to time. Well, in a situation of prosperity lasting at least several years, both in the real economy and in capital markets, most economic entities located on both sides of the markets begin to accept too high levels of credit risk and other risk categories. It should be added here that in this group of most entities only a few carry out risk assessment analysis processes, have risk valuation tools, run risk management processes and can accept transactions fully secured against negative scenarios on financial markets. Most entities, financial market participants do not do this, do not carry out these analyzes. These are primarily clients of financial services and products, using the services of banks and investment funds, individual clients and numerous non-financial enterprises. These entities rely on the opinion and analyzes carried out, on the recommendations and recommendations formulated for them by banks and investment funds.

On the other hand, if the rating agencies belonging to banks before the global financial crisis of 2008 were able to give the media unreliable recommendations that were misleading thousands of millions of financial services clients to the media, then in such a situation the systemic credit risk could quickly grow and exceeded optimal levels , acceptable, secured credit risk in transactions also carried out on capital markets using the financial capital of clients. Examples of breaking the rules of business ethics, failing to respect the principles of corporate social responsibility, unreliable, incomplete, improper information to clients, etc. were diagnosed in the operations of many banks before the global financial crisis appeared in autumn 2008. In addition, unreliable compliance with risk analysis process procedures has been diagnosed at almost all levels and stages of transaction processes or analytical related key issues necessary for the assessment and valuation of specific categories of financial, banking, market, operational risk, etc.

From the first contact of a banking adviser helping a potential borrower complete the application for a mortgage, by maintaining a specific level of cash reserves and highly liquid investment instruments required by the regulations of the banking supervision institution, ongoing risk monitoring of the entire loan portfolio and other financial instruments, including derivatives, up to the systemic deregulation carried out in the 1990s and the central bank policy, which kept interest rates record low for many years until 2007 - many errors were diagnosed that led to the creation of too high, not fully secured systemic credit risk and generating a global financial crisis in 2008.

In line with the above, in my opinion the importance of improving credit risk management processes in the context of analyzing the sources of financial and economic crises has been growing in recent years. An important factor in the need to improve credit risk management processes was to identify the sources of the global financial crisis of 2008.

Do you agree with me on the above matter?

I conduct research in this area. The conclusions of the research I published in scientific publications that are available on the Research Gate portal.

In view of the above, I am asking you the following questions:

- Is the minimization of the likelihood of subsequent global financial crises an important factor in the need to improve credit risk management processes?

- Is the importance of improving credit risk management processes growing in the context of analyzing the sources of financial and economic crises?

- What do you think about this topic?

- What is your opinion on this topic?

Please reply.

I invite you to discussion and scientific cooperation.

Thank you very much.

Best wishes.

Dariusz Prokopowicz

Dear Vladimir Mirkovic,

Yes, I agree, the factor of moral hazard, breaking the rules of business ethics, moral hazard, etc., played a significant role in generating the 2008 global financial crisis, but these were not the only major determinants that caused this crisis. Other significant factors include mistakes made as part of state intervention, creating financial innovations that precede the development of control systems of financial systems supervision institutions, imperfections in the procedures and systems of credit risk management, the generation of a speculative bubble on credit derivatives created specifically to maintain the economic situation in the housing sector, real estate e.t.c. In the context of the effective functioning of banking, a particularly key issue is to maintain high standards of financial risk management, including primarily credit risk, debt, financial liquidity, etc., and to apply high standards of business ethics and corporate social responsibility to avoid financial and economic crises, i.e. it appears from time to time in Western financial systems. The issue of unethical business practices of investment banking, which became one of the key factors in generating the global financial crisis of 2008, is described in my publications available on the Research Gate portal. Such practices that do not comply with the principles of business ethics and corporate social responsibility should not be used in finance and banking, including in the field of granting loans, selling securities, including subprime bonds, and other forms of external financing, as it largely leads it is the execution of financial transactions with too high credit risk etc. and, consequently, also to financial and economic crises. In banking, these standards should be high because banks are institutions of public trust. The only issue that remains is the effective use of modern information technology, ICT, Internet and Industry 4.0 in finance, including the improvement of risk management processes. Therefore, it is also necessary to improve operational and technological risk management processes as well as IT systems, with particular emphasis on the risk of loss of data transferred via the Internet as part of the development of online electronic banking, including mobile banking. I am conducting research in this field. I have published my conclusions from the research in scientific publications that are available on the Research Gate portal. I invite you to research cooperation on this interesting and still topical issue.

Best wishes,

Dariusz Prokopowicz