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Financial Services Firms: Governance, Regulations, Valuations, Mergers, and Acquisitions, 3rd Edition by Zabihollah Rezaee

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Chapter Six

Regulatory Environment and Financial Reporting Process of Financial Institutions

Introduction

The safety, soundness, efficiency, and effectiveness of the U.S. banking system is best served by: (1) a stable monetary policy; (2) effective market discipline; (3) adoptive regulatory environment; (4) effective corporate governance; and (5) reliable financial reporting process. Given the significant changes that are taking place in financial institutions, the purpose of this chapter is to discuss the banking regulatory and financial reporting environment. This chapter examines the three most fundamental public policy issues facing the financial services industry: consolidation, regulatory reform, and financial reporting.

Consolidation

The recent wave of consolidations in the banking industry, as discussed in Chapter 2, has resulted in fewer but bigger banking organizations. Consolidations have been viewed positively in the sense that they enhance the value of the combined institution to its owners by reducing the number of financial services organizations chasing marginal business and running up the cost of funds. Consolidations are also considered as effective vehicles for reducing overhead costs and creating economies of scale and scope, which in turn would benefit customers seeking desirable financial service. Consolidations can be very beneficial to the financial services organizations and their customers as the industry attempts to take advantage of economies of scale ...

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