Managing Risk and Capital in Financial Conglomerates
This paper examines some of the unique opportunities and difficulties faced by financial conglomerates, and discusses how these are dealt with in the Colonial Group. Section 2 provides an overview of regulatory changes to permissible corporate structures for conglomerates and briefly considers some of the problems associated with the structure which regulators presently favour. The principle of separation between entities within a financial conglomerate is also discussed. Section 3 focuses on one of the key drivers of convergence, namely, the ability to distribute a wider range of products more efficiently. The Section discusses how distribution channels within the financial sector have changed as part of the growing trend towards convergence and considers some of the initiatives that Colonial has implemented to enhance 'cross-selling' throughout the Group. Sections 4 and 5 discuss the management of risk and capital resources in a financial conglomerate. Although the principles of risk and capital management are common to banks, life insurance companies and fund management firms, there are often significant cultural differences between the three disciplines. Accordingly, these Sections also consider some of the complexities that may arise when such cultural differences exist. Finally, Section 6 examines the potential for regulatory capital arbitrage within a conglomerate and Section 7 provides a brief conclusion.
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