Regulation and Control of Economic Value

This chapter looks at the needs of regulation and control from a “businessman’s” point of view regarding the recent crisis of trust and confidence in the financial system. It calls for the concept of “economic value” to be used as a basic metric in reporting and control to get the balance right between solvency and economic value, as the starting point for the more complex task of calculating intrinsic value. Some of the faults, mistakes and abuses of the past years are discussed, as well as new legislation, such as the Dodd–Frank Ack, the Volcker Rule, and the EU Directives, designed to prevent those mistakes occurring again. The chapter takes a layman’s view of the Cyprus and Greek sovereign debt crises, and why the “experts” were unable to prevent those crises. The question of how to calculate the economic value of financial instruments, like derivatives, is also discussed. Finally, it is suggested that the annual reporting of the regulatory authorities might cover, as well as solvency and capital adequacy, the “economic value” issues which the economy is facing, and a section on consumer trust and confidence.