Table of Contents

The Financial Crisis and the Regulation of Finance

The Financial Crisis and the Regulation of Finance

Edited by Christopher J. Green, Eric J. Pentecost and Tom Weyman-Jones

The 2007–08 financial crisis has posed substantial challenges for bankers, economists and regulators: was it preventable, and how can such crises be avoided in future? This book addresses these questions. The Financial Crisis and the Regulation of Finance includes a comprehensive overview of the crisis and reviews the theory and practise of regulation in the UK and worldwide. The contributors – all international experts on financial markets and regulation – provide perspectives and analysis on macro-prudential regulation, the regulation of financial firms, and the role of shareholders and disclosure.

Chapter 14: ‘The New Masters of the Universe’: Institutional Shareholder Engagement and the Regulation and Governance of Banks

Andy Mullineux

Subjects: economics and finance, financial economics and regulation, money and banking


Andy Mullineux1 INTRODUCTION Two years is a long time in banking and finance. In 2007 it was the senior partners in private equity funds (PEFs) who were the fat cats under scrutiny in the UK. In 2009 it was the managers of the big banks that were being grilled by the House of Commons Treasury Select Committee about their large bonuses, and the managers of the large hedge funds (HFs) who were under scrutiny in both the US and the UK as a result of their short selling activities, especially of bank shares.2 Following the credit bubble, in August 2007 the current banking crisis began as a North Atlantic liquidity squeeze.3 The crisis got much worse after the collapse of Lehman Brothers investment bank in mid-September 2008, which in turn precipitated the collapse of the shadow banking system.4 The collapse of the Madoff Ponzi scheme in December 2008 and temporary bans on short selling in the autumn of 2008 put HFs under pressure.5 The bear market on the major stock markets from July 2008 put further pressure on HFs and PEFs and raised some serious issues about the traditional UK corporate governance model; particularly relating to appropriate levels of leverage and the design of remuneration packages to achieve incentive compatibility between management and shareholders (and perhaps other stakeholders).6 This chapter considers lessons for the corporate governance system in the UK, and the governance of banks in particular, resulting from the rise and fall of the shadow banking system. This...

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