Banking and Effective Capital Regulation in Practice:

Due to a historical lack of attention to the importance of modeling, measuring and managing risk, senior bank leaders are struggling to implement unified practices within their financial institutions that could address the gaps posed by risky management behavior, rogue trading, liquidity crises, prohibited investments in mortgage-backed securities, and default risks aligned with loans. In her book, Banking and Effective Capital Regulation in Practice: A Leadership Perspective (Routledge, 2021), Sophia Velez, BS ’99, MBA ’06, PhD, CPA, discusses the theories at play between bank managers and shareholders, a topic that gained importance as a result of the banking crisis and fueled the need for more efficient risk management and ethical managerial practices.

Velez worked with a senior bank leadership team to identify and describe effective capital regulation practices that can lead to a reduction in loss and risky management behavioral practices. The book offers consensus on activities that bank managers can implement to address bank risk, and analyzes the relevant factors that determine the necessity for banking regulation and the important role of regulation in managing banking crises. The author’s analysis of the important regulatory aspects in developed countries, such as the U.S., offers a useful conceptual framework for creating an adequate banking regulatory environment in developing countries.

“The lenses of agency and goal theories have unveiled and provide an understanding of the problems that exist between shareholders and managers as well as the role of incentives in banks that contributed to rogue behavior,” Velez said. “This book can assist undergraduate, master’s, and PhD students in understanding the underlining constructs in the banking industry.”