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Capital Failure: Rebuilding Trust in Financial Services
Contributor(s): Morris, Nicholas (Editor), Vines, David (Editor)
ISBN: 0198712227     ISBN-13: 9780198712220
Publisher: Oxford University Press, USA
OUR PRICE:   $137.75  
Product Type: Hardcover - Other Formats
Published: October 2014
Qty:
Additional Information
BISAC Categories:
- Business & Economics | Corporate Finance - General
- Business & Economics | Business Ethics
- Political Science | Public Policy - Economic Policy
Dewey: 332.17
Physical Information: 1.2" H x 6.3" W x 9.3" (1.75 lbs) 424 pages
 
Descriptions, Reviews, Etc.
Publisher Description:
Adam Smith's 'invisible hand' relied on the self-interest of individuals to produce good outcomes. Economists' belief in efficient markets took this idea further by assuming that all individuals are selfish. This belief underpinned financial deregulation, and the theories on incentives and
performance which supported it. However, although Adam Smith argued that although individuals may be self-interested, he argued that they also have other-regarding motivations, including a desire for the approbation of others. This book argues that the trust-intensive nature of financial services
makes it essential to cultivate such other-regarding motivations, and it provides proposals on how this might be done.

Trustworthiness in the financial services industry was eroded by deregulation and by the changes to industry structure which followed. Incentive structures encouraged managers to disguise risky products as yielding high returns, and regulation failed to curb this risk-taking, rent-seeking behaviour.
The book makes a number of proposals for reforms of governance, and of legal and regulatory arrangements, to address these issues. The proposals seek to harness values and norms that would reinforce 'other-regarding' behaviour, so that the firms and individuals in the financial services act in a
more trustworthy manner.

Four requirements are identified which together might secure more strongly trustworthy behaviour: the definition of obligations, the identification of responsibilities, the creation of mechanisms which encourage trustworthiness, and the holding to account of those involved in an appropriate manner.
Financial reforms at present lack sufficient focus on these requirements, and the book proposes a range of further actions for specific parts of the financial industry.