• What if a bank fails?

    The failure of Lehman Brothers highlighted the fact that even larger banks in industrialised nations can fail, underlining the need to manage counterparty risk. In this article we discuss the credit and liquidity risks relating to cash deposits, loans or derivative contracts that may arise in the event of a bank’s insolvency.

  • Basel II and the financial crisis

    The revised framework for Basel II provides a range of tools for banks and bank supervisors to better capture and assess credit, market and operational risks faced by banks. Yet its implementation in Europe was not able to prevent the current banking and financial crisis. While some observers have argued that the existing regulatory capital framework may have actually contributed to the financial turmoil, others believe that Basel II will address many issues raised by the crisis. In this article we explore the arguments and summarise the amendments to Basel II proposed by the Basel Committee on Banking Supervision in January 2009.

  • Managing commodity price risk

    Commodity price volatility has had a significant impact on the performance of many businesses in recent months. In this article we look at how the factors driving commodity prices can be assessed. We also consider general strategies which can be used to structure commodity price management activities and manage commodity price risk exposure.

  • Amendments to IAS 39

    IAS 39 has long been criticised, particularly by banks, for its complexity and the potential consequences of mark-to-market measurement of financial instruments. The financial crisis has sparked renewed controversy over the effects of fair value accounting on banks’ balance sheets, regulatory capital and ability to lend in a deteriorating market environment. In response to political demands, the IASB has adopted amendments to IAS 39 and IFRS 7 enabling the reclassification of certain non-derivative financial assets in a new exception to fair value measurement.

  • Corporate governance reporting

    The EU Company Reporting Directive has introduced new rules requiring companies whose securities trade on a regulated market to produce a discrete corporate governance statement in their annual reports or as a separate report. In this article we examine the requirements of the reporting directive and the way in which other relevant information should be disclosed when reporting on corporate governance.

  • Corporate governance – internal control

    Internal corporate governance control became an important issue in the wake of major accounting scandals in both the US and Europe. While the US has taken steps to regulate the internal control systems of public companies with Section 404 of Sarbanes-Oxley’s to enhance the accuracy and transparency of financial reporting, the European Union and its member states have taken a more market-regulated approach. However, both initiatives either require or encourage listed companies to implement effective risk management and internal control frameworks and to report on their effectiveness to shareholders. In this article we look at the main components of internal control systems.

  • Corporate governance codes

    Corporate governance gained prominence following the large scale accounting scandals in the US and Europe in the early 2000s. While US legislators chose to regulate some corporate governance issues by adopting the Sarbanes-Oxley Act, European states tend to rely on voluntary codes of conduct for the improvement of corporate governance standards. In this article we examine the themes expressed in corporate governance codes and outline some of the differences and similarities between national corporate governance practices.

  • Political risk management

    Businesses that expand globally in search of new markets, resources, lower production costs and other opportunities face growing complexity in terms of the business practices and additional risks resulting from new political and economic environments. The management of such risks can ensure that investments in new markets and established operations abroad are sufficiently protected. A comprehensive and systematic approach to political risk management can further enhance a company’s ability to take advantage of new market opportunities.

  • Managing FX risk in restricted markets

    In the third article in our series on FX risk we look at the management of transaction exposures in markets that are restricted by capital controls. The limited convertibility of currency and restricted availability of hedging instruments in these markets may make traditional risk management techniques ineffective. However, other instruments such as non-deliverable forwards and non-deliverable options may be available in the offshore markets to hedge certain types of FX risk.

  • A guide to FX transactions

    Our series of articles on foreign exchange risk management continues with a look at external hedging techniques and the benefits and disadvantages of individual hedging instruments such as forwards, futures, options and money market hedges.