Handbook for Directors of Financial Institutions
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Handbook for Directors of Financial Institutions

  • Elgar original reference

Edited by Benton E. Gup

Offers advice from existing directors, scholars and regulators about what good directors need to know. The Handbook for Directors of Financial Institutions offers the practitioner and the scholar a comprehensive guide to what it takes to survive and thrive as a director of a financial institution. The authors comprise current directors of banks, credit unions, insurance companies and other organizations, bank regulators, lawyers and academics. They provide unique insights and advice about corporate social responsibility, legal risks, starting a new bank, D & O insurance, sub prime lending, Islamic banking, and other timely issues.
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Chapter 2: Forces of Change

Benton E. Gup

Extract

2 Forces of change Benton E. Gup Some of the major factors that determine the success or failure of financial institutions are beyond their control. These forces include, but are not limited to laws, globalization, technology, competitors, activist investors, demographics, and changing business models that are discussed below. Selected US federal legislation Federal and state laws and regulations limit the activities of financial institutions. In this section, we examine three federal laws directly tied to financial institutions, and some of their consequences to illustrate how laws can bring about changes in the financial system. Federal laws do not have to be directed at financial institutions in order to have an impact on them. As noted in Chapter 1, the Sarbanes-Oxley Act of 2002 (SOX) was enacted as a reaction to the scandals and bankruptcies of Enron, WorldCom, and other firms in order to deter financial misconduct. The law has resulted in such high compliance costs for publicly-traded companies that some firms are going private, or changing their listing to foreign stock exchanges. Robert Grady, who runs the venture capital arm of the Carlyle Group, argues that Intel, Cisco, and E*Trade probably would not have public offerings today because of SOX.1 Financial Executives International reported in 2005 that the average cost of complying with SOX Section 404 was $4.36 million.2 “Going private” means that a company reduces its shareholders to fewer than 300, and is no longer required to report to the Securities and Exchange Commission.3 Many de novo...

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