The Hindu Business Line : Market intelligence system has to be unorthodox

We may develop sophisticated regulatory and supervisory systems, but financial celebrities know how to get round these, rues D. N. Ghosh in Governance & Accountability (www.oup.com). This is how the circumvention happens: "Their research is oriented primarily, if not exclusively, towards exploiting regulatory arbitrage in systematic ways. Initially, their suave dealings with the political masters tend to generate a climate of regulatory caution, but in the course of time, the inevitable happens: market participants tend to interpret such silence as the implicit regulatory approval of the behaviour of celebrities." Ghosh, therefore, advises regulators to sharpen their regulatory intelligence "in an ambience where the big and powerful spare no efforts to make it known that they can get away with virtually anything." Our genre of regulatory tactics, suited to old style gentlemanly capitalism, will not do, declares the author.

"Our market intelligence system has to be extensive, but more importantly, it has to be unorthodox. Listen to the whispers in the market, create listening points all over, be attentive to the signals emanating, have the courage to put uncomfortable questions to those who pose as financial celebrities, demonstrate your independence, and prove the credibility of the regulator."

Wishful?

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Budgetary control benefits

Budgetary control can and does persuade people to modify their behaviour in useful ways, says David Davies in Finance for HR Managers (www.jaicobooks.com). "For example, if there were no financial plan for human resources in your organisation the staff would take a laissez-faire approach and would not be at all concerned about what was spent or when it was spent - that is until money ran out and the department or section was no longer able to operate."

Here is an example: "A local authority that took 250 elderly people into its care homes and then had to expel 50 of them half way through the year because it was running out of money would be pilloried by the media and might well find itself subject to government investigation so that its very existence would be in jeopardy."

Budgets can also motivate your employees, says Davies. "Organisations that have no system of budgetary control may survive but they certainly will not prosper, because staff will be in the unhappy position of not knowing what is expected of them and will therefore lack motivation."

How would you feel if you worked in a structure that was so lacking in direction that no one was in a position to congratulate you at the end of a year in which you had worked extremely hard, asks Davies? "All that would be required to improve the situation is a set of targets against which you could be measured."

Helpful ideas.

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Mathematics and reality

If you are not allergic to math, you may like to know that "mathematics, like experimentation, sometimes yields surprising or even unwanted results," as Burton Feldman writes in 112 Mercer Street (www.landmarkonthenet.com). Quite like accounting, you may like to mutter, but the book speaks of an example of `surprise' thus: "In 1928, the British physicist Paul Dirac formulated an equation only to find that it predicted a hitherto unknown and startling particle, the antielectron (or positron). One might even say that it was not Dirac, but his equation (via a minus sign), that discovered antimatter."

Though mathematics does not describe the physical world per se, it does "problem-solve in the realms of space, number, form, and change, says the author. "Einstein, a born physicist schooled in nineteenth-century empiricism, approached mathematical formalism with trepidation: `As far as the laws of mathematics refer to reality, they are not certain; as far as they are certain, they do not refer to reality.'" Applies to accounting, again?

Enjoyable read.

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Five pillars of risk management

Risk management framework, information security management, outsourcing management, business continuity management, and legal and regulatory compliance. These are the five pillars that Jayaram Kondabagil discusses in Risk Management in Electronic Banking (www.wiley.com).

An effective risk management framework, as he explains, "includes a well-defined process for identification and management of risks, policies, and procedures, supporting internal controls and audit, and it should underpin all the e-banking activities of the bank." Such a framework should be built on a formal governance process, rely on individual responsibility and collective oversight, use advanced analysis techniques, and be backed by comprehensive reporting, the author elaborates.

The chapter on information security, the second pillar, speaks of the traditional three properties, viz., confidentiality, integrity, and availability, and also two other properties relevant to financial transactions: non-repudiation and authentication.

Essential addition to the finance professionals' study list.

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When liquidity runs dry

The phrase `liquidity crisis' is firmly in the headlines these days. For instance, `Liquidity crisis grows as Libor rates gap hits 20-year high,' reports Telegraph.co.uk, 6 hours ago, at the time of writing. "Liquidity crisis could spark $43 billion `firesales'," cautions Financial Times. And an article in Forbes wonders, `Liquidity crisis or credit crunch?'

As you may be aware, central bankers across the globe have been battling the crisis and pumping in money to keep the finance engine running. "It is easy to say that the provision of official liquidity is the right response to a liquidity crisis. It is much harder to answer the question of how much liquidity is needed," write Nouriel Roubini and Brad Setser in Bailouts or Bail-Ins? (www.vivagroupindia.com).

"When policy credibility is lacking, investors lack complete information about the country's true financial health, the country's economic conditions are uncertain, and official lending does not provide enough money to protect everyone from losses, risk-averse investors may still prefer to withdraw rather than roll over their investments." Therefore, combining official financing with a coordinated rollover of some claims may be effective, suggest the authors.

A book for your survival kit.

Five tips to handle crisis

Crisis is typically unexpected, some of its consequences are inevitable, and "stakeholders are forced to make quick and smart decisions under increased pressure in an attempt to normalise the situation," write Harrison Monarth and Larina Kase in The Confident Speaker (www.tatamcgrawhill.com).

They outline five tips to handle speaking crisis, thus: anticipation ("consider worst-case scenarios and provide resources as well as alternate plans for them"); awareness ("be on high alert for the first signs of trouble on the horizon and act immediately"); responsibility ("when the unexpected happens, people often reach for excuses and scapegoats"); rehearsal ("if a PowerPoint projector breaks down in the middle of a presentation and the show must go on, a presenter must be able to pick up where the slides left off and bring the scheduled talk to a successful conclusion without the audiovisuals"); and composure ("panicking is like pouring gasoline on a fire, causing a small crisis to quickly escalate into a bigger one").

Great guidance.

http://BookPeek.blogspot.com

D. Murali

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