Corporate market responsibility for orderly financial markets: systemic risk and regulation following Citigroup, sovereign funds, and the credit crunch

Gomes, Rafael A.R. Pereira (2011) Corporate market responsibility for orderly financial markets: systemic risk and regulation following Citigroup, sovereign funds, and the credit crunch. PhD thesis, University of Nottingham.

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How are companies responsible for helping to ensure orderly financial markets? In economic theory, the question is redundant, because orderly markets result from normal business activity, with support from regulators. Within the last few years, however, several episodes have suggested differently. Citigroup investment bank was fined for destabilising bond markets, despite being absolved of criminal conduct. Sovereign wealth funds were compelled to sign a code-of-conduct, to safeguard "free and open markets", despite having brought economic benefits globally. The US and UK governments described the most profitable financial decade in generations as an "age of irresponsibility", after it led to a crisis. These three episodes are the empirical focus of this thesis.

The thesis develops a grounded theory of corporate market responsibility (CMR)- an expectation by regulators and other actors that firms will help to regulate systemic risk in financial markets through discretionary activities that supplement regulatory requirements. This expectation explains the controversies, and may help us to anticipate and understand similar episodes in future. Further, it is argued that observing CMR conduct - which relates to risk management, investment policy, and proactive improvement - decreases regulatory risk for financial firms, while not observing it increases regulatory risk. The primary reason for this is that CMR conduct is perceived to reduce systemic risk, and state actors regard market governance as a shared responsibility with firms.

In addition to framing these controversies, CMR theory contributes to our understanding of several concepts in decentralised governance and regulatory capitalism. It illustrates a substantive model of meta-regulation - that is, the regulation of corporate self-regulation. As such, it illustrates substantive limits for private authority and its legitimacy. The observation of CMR also reveals new dimensions of sociological processes in financial governance, particularly markets' social embedded ness, and actors' reliance on performative market models. Finally, CMR illustrates a governance model combining incentives with ethics, as regulators seek to de-legitimise regulatory arbitrage by firms. The analysis concludes by arguing that CMR is increasingly relevant for other substantive contexts such as the hedge funds industry and private markets like 'dark pools'.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Chapple, W.A.
Moon, J.W.
Keywords: Citigroup (Firm) Corporate and Investment Banking, business ethics, financial crises, financial risk management
Subjects: H Social sciences > HF Commerce
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School
Item ID: 13969
Depositing User: EP, Services
Date Deposited: 07 Feb 2014 12:18
Last Modified: 26 Oct 2016 13:12

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