European Union and the Capture TheoryEssay Preview: European Union and the Capture TheoryReport this essayEuropean Union and the Capture TheoryIt is certainly a fact that the world revolves around the concept of “Self-interest”. Financial reporting and its regulation are no different as they too are affected by the self-interest of the Professional Bodies involved (Deegan, C. 2009). But, when the goings gets tough, these individuals group into team to help achieve their objectives. These individuals do have a burning interest to control and oversee the regulations which is not possible because of the non-compliance and the lack of legitimacy (Gaffikin, M 2008). . Instead, alternatively, these groups capture the government regulations which are primarily intended to protect the public interest. Such control of the regulatory bodies by those entities which usually belong to some specific industry is best explained by Capture Theory (AmosWEB. 2011). This is possible due to the large extent of interaction possible during the regulating process. The demand for lobbying will continue to exist as long as the net benefit stays positive and lobbying costs are prohibited. Such empathised regulations which are made according to the needs of the professional bodies are moreover legitimised by the government (Gaffikin, M 2008).. So, during the standard setting, it is inevitable that the regulators have to work in an overly political environment. Such is the politics of the foundation of the regulations.
With a follow up of the idea; Markets require full and transparent information, because of which the companies must disclose the information the way it should be, IASB (International Accounting Standard Board), attempted to force the firms to account for the derivative losses or gains on their books. In 2003, the volume of financial derivatives increased multi-fold and as recorded by a report by the Bank for International Settlements: the fair value of over-the-counter derivatives was $7.9 trillion (Whittington, G. 2005). As historic cost of accounting was applied for financial transactions; the values of the derivatives had very low or even zero historical cost; yet their current values were highly sensitive to the underlying variable such as interest rates or exchange rates (Wild, J.J 2007).. Thus, it was very crucial that the entities measure the derivatives at current value under the IASB Fair Value standard (Whittington, G. 2005). Shaken from the Enron affair and the disruption of capital markets, IASB hoped to control the further unpleasant surprises, uncertainty and lack of confidence in business for the sake of the upcoming economic prosperity (Whittington, G. 2005). But, the draft that IASB proposed soon attracted various wedges filled with power struggles from different stakeholders. Powerful stakeholders like European banks and French Government lobbied and raised a voice against the drafts proposal ideas saying; it would ultimately result in an artificial volatility and it will have harmful consequences
The Financial Services Association was called out for its role in the political process; it is said to have threatened the interests of big lenders and it took part in numerous political contests.
The European Union adopted new anti-money laundering legislation against its financial sector; it is the European Union’s law on financial securities, where it imposes mandatory measures as the financial sector provides financial services and controls the financing of foreign enterprises. Its regulation of the financial sector has also been subject to debate.
The European Parliament adopted a “new regulation for the banking services sector” (Preston Lautens, P. 2004).
The EFSMJ called on the European Union to adopt a new EU law, or ‘Regis’.
The European Central Bank (ECB) called on the EU to make clear that the financial sector has the potential to be subject to counter and counter-regulation.
In the European Commission last year, the European Council and the Council of the European Union (EU), and the European Parliament, agreed to a resolution that the European Union should ensure the functioning and the efficient administration of financial services in Europe and within the European Union.
By the end of last year, we have reached another historic point in the financial sector collapse, the first such collapse following financial crisis in recent history. The credit crisis and other financial crises is clearly the most complicated of financial phenomena because the credit crisis caused a significant reduction in the economic stability in Europe and was caused by a collapse of the banking system. But the European Central Bank (ECB) said that by failing to maintain liquidity on the EU banking system it is “dangerous” for Europe and the whole world to be put at risk.
The European Central Bank said that by failing to deal with the crisis, the financial sector’s liquidity was likely to be reduced by 40% (Buchrag, G., et al, 2013) and therefore it cannot be considered a “risk” in the short term when the banking system is under pressure. There are other factors that contribute to this scenario.
The Financial Services Association said that the European Union could use new money laundering legislation to make it easier for the financial sector to hide the true cost of the activities undertaken or the impact their actions have.
Other central banks are trying their best to keep up appearances that they are being held back by the banking sector.
The Financial Stability Board (FSB) said that in July 2013, the European Central Bank released a report proposing new rules for how the banking regulator can manage the banking problem such as the banking industry to make it easier for the financial sector to hold debt and to provide more control over the issuance of banking capital and the rate at which interest rates and the amount of financing is issued may be lowered or the amount of debt held may be increased by any of three criteria; a) there is a fundamental need for a regulatory mechanism which will allow for regulation of the financial sector at a time when most of the international financial services sector is under constant pressure and the banking sector is very vulnerable and in need of regulation (Gardner & Rachlemer, 2008), a) the banking sector is vulnerable to excessive capital controls by banking regulators (i.e., financial derivatives transactions and other lending); and b) the financial sector cannot be taken as an investment in the development of its economic engine.
The Financial Stability Bureau, the European Central