The Financial Institutions Incentives When They Place Financial Assets With Credit Risk to Retail Investors
42 Pages Posted: 10 Jun 2019
There are 2 versions of this paper
The Financial Institutions Incentives When They Place Financial Assets with Credit Risk to Retail Investors
Date Written: 2010
Abstract
This paper analyzes the conflict of interest that exists when a financial institution issues and places a financial asset with credit risk among retail investors. Four regulatory measures are presented and analyzed in order to improve retail investors protection. It is shown that in this type of issues the most effective regulatory measure is that the supervisor sets a price cap. A close approach to this measure would be that the supervisor asks for independent valuations of the financial assets to provide investors and the supervisor itself with a well-founded opinion about the price of the issue. Under this approach, at least a second best social optimum is achieved.
Keywords: conflict of interest, retail investors, regulation
JEL Classification: G12, G18
Suggested Citation: Suggested Citation