[DOCUMENT TITLE] Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

[Document title] Case Solution

Question 2

Innovation is a double-edged sword. Internet is a great benefit to the society as a whole, but it promotes pornography (obviously the largest network-based business with the greatest distance), fraud and time-consuming activity. Cars and other motor vehicles have brought mobility, freedom and great economic efficiency. In the United States alone, more than 40,000 deaths are caused each year, most of which are preventable, and there are significant pollution and suburban expansion problems.(Abel, 2017).

More complex “financial innovation” is not static. Cautious observers believe that some financial innovations are good: Paul Volcker, for example, even praised the invention of ATM. Other innovations, such as: undeclared and deferred structured investment vehicles (SIVs), are not good. The real trick is to list and evaluate the major innovations and determine the balance between good and bad. I highly recommend my recently published article by my colleague Robert Litan Brookings for this score.

Recent debates on financial innovation have been severely unfavorable in terms of balance, so let me list some of the financial innovations that Litan has seen as positive rather than negative, since the 1960s:

Intensive use of credit cards.
Debit card.
Money market funds.
Investment fund index.
Exchange Traded Funds (ETFs) as an extension of index funds.
Treasury Inflation Protection Bonds (TIPS).
Credit score to help with credit decisions.
The basic form of secularization.
Venture capital funds.
Interest rate and foreign exchange swaps.

The disaster caused by the recent financial crisis has greatly contributed to the overall negative characteristics of financial innovation. It is clear that some recent financial innovations (such as: mortgage-backed securities (CDOs), SIVs and credit default swaps (CDSs)) have been abused, and a number of measures have been taken, even for SIVs, which is just a bad idea in the first place. In some crisis theories, these innovations play a central role, which means we would suffer much less without them. If people accept these views, then at least some types of innovation will do extreme damages, so our society as a whole needs to be extremely careful about the financial innovation.

There is no room here for an in-depth discussion of the causes of the financial crisis, but let me note that these innovations have played a more moderate role in advancing many of the prestigious theories of the financial crisis. For example, many conservatives, such as: Peter Wallison, attributes responsibility for the crisis to the actions of the government. Home ownership was forced to achieve a social goal that blew up a huge real estate bubble and even forced Fannie Mae and Freddie Mac, along with the big banks, to take on excessive mortgage risks. This, along with an excessive mass of funds, created a huge bubble that could explode with huge damage. In this type of criticism, financial innovation helps to mask or exacerbate other bad behaviors, but this is clearly not the main reason in itself.

My personal opinion is that there are many reasons for the financial crisis. Individuals and institutions in almost every industry, have made serious mistakes, including: Wall Street, credit rating agencies, governments, Congress, regulatory agencies, individuals, such as: home buyers and individual investors. One of the main reasons why so many people have contributed to this crisis in many ways, is that the excessive mitigation and underestimation of risk has been interrupted for 25 years by a very favorable financial market (just a small storm). When things go well for such a long time; there are excessive self-confidence mistakes. (In view of this, I am thinking more of the crisis.) In light of this, bad financial innovation or the abuse of good innovation is an important factor, but we must be careful regarding not to overestimating its impact.

Question 3

A group of active local banks presented the interest rates they were willing to borrow from the banks overnight, for the next twelve months.

However, the submission process makes the reference value vulnerable to handling or panel library errors. The relevance of the benchmark is also questionable due to loans provided by the central banks, corporations or asset managers.

Since the London Interbank Offered Rate (LIBOR) scandal; the Interbank Offered Rate (IBOR) has come under an increasing control. This includes the recommendations issued by the Financial Stability Board in 2014, to strengthen the key interest rates.

In the following years, a number of regulatory agencies announced their intention to replace or supplement the IBOR with risk-free tariffs (RFRs) for the short term.

One of the biggest questions is how to replace the “curve” or maturity structure of IBOR when IBOR itself is no longer based on the important underlying credit market.

As the number of interbank transactions decreases; it becomes very important for the new key interest rate to include the place of the transfer.

There are many options:

Use Overnight Index Exchange (OIS) data and add it to the RFR.

In some markets, OIS data referring to RFR (such as: SONIA or SOFR) can be used to create expression structures.

Improve your existing IBOR.

The aim is to broaden the range of international inter bank lending rates in order to obtain more sources of financing and to study other related transactions before seeking the experts’ advice.

Refinitiv is the world’s largest interest rate index provider, operating as a leader and calculation agent in markets, such as: Canada, Singapore, Hong Kong and Japan.

Refinitiv's benchmark management follows IOSCO's financial benchmarks and Refinitiv Benchmark Services Limited is also an authorized benchmark manager in accordance with EU benchmark regulations.

We are working with central banks, regulators and banking associations to discuss the transition of key interest rates in their markets:

Futures structure: Work with partners, such as: Trade-web, the central clearing house and intermediary brokers to select OIS data from the major currencies (such as GBP, EUR, USD, JPY and CAD) that will be used by the existing central bank RFR to secure the market for maturing loans and other structures that require future interest rates.

New or Enhanced RFR: For countries that do not have RFRs or want to improve the operation and management of existing RFRs, Refinitiv may use transaction data directly from the source to generate RFRs.

Developments in international inter bank lending rates: The cascade method for the interest rate on existing international inter bank loans, the Code of Conduct for Issuers and the monitoring of the organizational principles of the International Securities Regulatory Commission and post-issuance supervision and EU BMR...................

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[DOCUMENT TITLE] Harvard Case Solution & Analysis