Abstract

http://ssrn.com/abstract=622161
 
 

Citations (2)



 
 

Footnotes (104)



 


 



Subtle Hazards Revisited: The Corruption of a Financial Holding Company by a Corporate Client's Inner Circle


James A. Fanto


Brooklyn Law School - Gerald Baylin Professor of Law & Co-Director of the Center for the Study of Business Law & Regulation


Brooklyn Law Review, Vol. 70, pp. 7-37, 2004

Abstract:     
I argue here that the involvement of financial holding companies (FHCs) in the recent corporate scandals shows that the "subtle hazards" of combining commercial and investment banking are not those identified by the United States Supreme Court in Investment Co. Institute v. Camp. Rather, the basic subtle hazards risk is that FHC relationship investment bankers become part of a company client's inner circle of management and participate in improper and often illegal transactions that benefit the inner circle at the expense of a company's investors and its other corporate constituencies. Investment bankers draw commercial bankers and the FHCs within the influence of the destructive circle. I contend that evidence from the corporate scandals shows that FHCs incurred this risk and suffered significant harm from it. I then argue that bank regulators need to address the risk by ensuring that a FHC has in place procedures to keep itself and its employees from falling within the influence of the inner circles of its investment banking clients. The Federal Reserve, I propose, should require (and not just recommend) FHCs to have senior transaction and relationship oversight committees with the power necessary to review and veto inappropriate transactions and relationships between the FHC's investment bank or any other nonbank affiliate and their company clients, and it should regularly evaluate the committee's performance as part of its examination of a FHC.

Number of Pages in PDF File: 31

Keywords: Banking, corporate governance

JEL Classification: K22, K23

Accepted Paper Series





Download This Paper

Date posted: November 22, 2004  

Suggested Citation

Fanto, James A., Subtle Hazards Revisited: The Corruption of a Financial Holding Company by a Corporate Client's Inner Circle. Brooklyn Law Review, Vol. 70, pp. 7-37, 2004. Available at SSRN: http://ssrn.com/abstract=622161

Contact Information

James A. Fanto (Contact Author)
Brooklyn Law School - Gerald Baylin Professor of Law & Co-Director of the Center for the Study of Business Law & Regulation ( email )
250 Joralemon Street
Brooklyn, NY 11201
United States
718-780-7566 (Phone)
718-780-0375 (Fax)

Feedback to SSRN


Paper statistics
Abstract Views: 1,352
Downloads: 207
Download Rank: 88,186
Citations:  2
Footnotes:  104

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.235 seconds