With a total of 92 papers presented by researchers from leading Spanish and foreign universities, the forum has become reference point in international financial research. Representing IESE were Profs. Javier Estrada, Heinrich von Liechtenstein, Xavier Vives and Carlos Vergara.

The two-day event saw participants analyze a range of issues, including: the impact of the banking crisis on the concentration and regulation of the sector, the freezing of the money market and the insurance deposits, the role of agreements in public and private debt, the impact of symmetry (or downside risk) in portfolio selection, models of stochastic volatility with price volatility and straddle options, consumer risks and the profitability of government bonds.

Notable sessions included those of the two guest speakers: Alexander Ljungqvist, professor of Finance at New York University’s Stern School of Business, and Denis Gromb, professor of Corporate Finance at INSEAD.

Greater Control to Companies and Financial Intermediaries

As Ljungqvist explained, “after every major crisis there are calls to tighten corporate governance.”

In the US, the Obama administration is working on getting increased oversight of executive payouts. At the same time, activist investors are pushing for a clear division between the CEO and the Chairman roles within companies, while the SEC is proposing to make it easier for shareholders to nominate board members. Nevertheless, these measures do not necessarily guarantee better results. “There is very little relationship between the characteristics of a board and how the company actually ends up performing,” says Ljungqvist.

Moreover, it is extremely difficult to evaluate how well a board of directors carries out its duties or how familiar it is with the tasks performed by company executives. “Maybe it is not empowering the board that improves company performance but changing the legal environment,” noted Ljungqvist.

Later, Denis Gromb said that the current crisis has confirmed that—contrary to the assumptions of textbooks—the issue of liquidity in the financial markets is far from being perfect. “Not everything is as smooth or spontaneous as the textbook approach suggests. Prices do deviate from fundamental values, sometimes by large margins and sometimes for a long time,” he said.

Gromb concluded by pointing out that investors who take advantage of a price differential between two or more markets by simultaneously buying in one and selling in the other, have better investment opportunities than other investors. He also prescribed measures for rebalancing liquidity, such as “tightening the constraints on the intermediaries (i.e., arbitrageurs) and reducing the competition between them.”

Examining the de Larosière Report

One of the featured sessions at the forum was the round table on the implications of the de Larosière report and reforming financial supervision in Europe, under the auspices of the Spanish Stock Exchange Commission (CNMV).

José Pérez, chairman of the CIMD Group, discussed the new proposals put forth by this report, which include setting up the European Systemic Risk Council that will monitor the possible risks accumulated by means of an early warning system to prevent situations of major crisis like that of 2007.

“Another of the objectives will be to create some common standards, through the new European System of Financial Supervision, for all national supervisors that promote convergence among the different countries and levels the field to a single supervisory system,” explained Pérez.

Miguel Martin, chairman of the Spanish Banking Association (AEB), also discussed supervision, saying that it should nurture the stability of the system as opposed to individual organizations. Martín said that, “at this point, supervision is at the national level, so supervisors need to reach agreements by creating colleges and institutions to avoid accruing risks like those that led to the financial crisis.”

José María Roldán, General Director of banking regulation at the Bank of Spain, expressed some concerns about the new system being proposed. “Each country has a different starting point for its model of supervision, and a different culture of supervision. In Spain, it is largely geared toward accounting rules, whereas in other countries it is the auditors that perform this task of supervising; the euro area countries have greater coordination needs than other European countries… All of these factors can hinder that vital coordination,” said Roldán.

IESE Prof. Xavier Vives continued in the same direction, noting that the regulatory system in Europe constitutes an obstacle for financial integration. Vives spoke positively about the de Larosière report, though he was skeptical about its findings. “We’re not really sure whether it will be effective. We don’t know how the costs would be divided with a single European organization, or the relevant powers that the supervising committees might have,” he said.

Fernando Restoy, Vice Chair of the CNMV, showed his support for the initiative that “will give greater independence to the supervisory boards, ensure that they have the powers and the necessary resources for the task of supervision.” Restoy also spoke of the need for new European legislation with less leeway to transpose the rules to the guidelines of each country.

Soledad Núñez, General Director of the Treasury and Financial Policy for the Spanish Ministry of Economy, placed special emphasis on the need to harmonize supervision. The round table was moderated by Fernando Restoy, vice chair of the CNMV.

Future Research Needs

Another of the event’s round tables, led by the Spanish stock-market operator Bolsas y Mercados Españoles (BME), addressed some finance-related topics of particular relevance for businesses.
 
Daniel Villalba, board member for Abengoa and Vueling, mentioned “the need to research about fuel hedging for the airlines and hedge for multinational companies that have operations in multiple countries with different foreign currencies, different types of debt with different terms and conditions, or that buy and sell products with no control over their prices.”

Santiago Fernández Valbuena, CFO at Telefónica, called attention to how little application some instances of financial research have, especially in terms of long-term forecasts. “When you make an investment decision, you do not know what will happen in the medium or long term: it is not easy to predict. We need research that responds to the real circumstances and is helpful for decision making and for businesses,” he said.

Meanwhile, Jorge Yzaguirre, Head of Equity at BME, analyzed the composition of the current financial market.

After two intense days, the 17th Finance Forum concluded with an awards ceremony for the best studies presented, which was held at the “Museo del Ferrocarril” (Railroad Museum) in Madrid.