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POLICY REMEDIES FOR CONFLICTS OF INTEREST IN THE FINANCIAL SYSTEM

By Frederic S. Mishkin

Abstract

Columbia University or the National Bureau of Economic Research. In his long career at the Bank of Canada, Chuck Freedman’s writings have not only focused on monetary policy, but also on how to make the financial system work more efficiently. This paper follows in the tradition set by Chuck by examining policies to remedy conflicts of interest in the financial services industry. With the end of the stock market boom in 2000, financial markets have been jolted by one corporate scandal after another. The cycle began with the spectacular bankruptcy of Enron Corporation in December 2001, once valued as the seventh largest corporation in the United States, and the indictment of Enron’s auditor, Arthur Andersen, one of the big five accounting firms. Subsequently, there have been revelations of misleading accounting statements at numerous other corporations, including WorldCom Tyco Industries and more recently Ahold, which have added to the doubts about the quality of accounting information in the corporate sector. Criminal cases have also been brought against investment banks for encouraging their stock analysts to hype stocks that they had serious doubts about and which turned out to be disastrous investments. These scandals have received tremendous public attention, both becaus

Year: 2003
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