Firm Investment is the total value of a firm’s assets – stock and property included. The concept of Firm Investment was introduced to simplify the complex international financial reporting systems. Today, it is an often quoted statistic in assessing potential investment opportunities. In theory, Firm Investment should be proportional to the performance of the firm. If the firm is growing (say by 10% per year), then there should be an increase in firm investment as well. Conversely, if the firm is experiencing declining sales, then firm investment should decline correspondingly.
To facilitate evaluation of firm investment, several measures are available, including: The six Latin origin indicators of firm investment are A+ B+ C+ D+ E+ F. A positive A implies increasing value of the firm, while a negative A indicates a decrease in value. A negative B indicates that firms in the euro area countries have decreased their value since they were listed on international investment rating agencies. A + B+ indicates an improving picture and an increase in value, while a + C means the same, but with lower returns.
Many argue that although the European Centralised Banking System (the OCBS) provides adequate supervision of banking organisations in the euro area, it lacks the flexibility, effectiveness and real-time visibility that would allow assessment of the true picture of firm investment across the whole market. Furthermore, because the OCBS is tied so closely to credit risk metrics, it can only provide information after an extremely long time (often more than a decade) after the events that triggered the information appear, thus creating a rather biased view of the risks posed by particular instruments. There is also scepticism about the relevance of OCBS data in the context of global macroprintervention.
In recent years many people have argued that supervisory authorities (such as the Bank of England, the Bank of Canada and the Bank of Japan in Japan) are too rigid in their approach to bank supervision and too dependent on a narrow set of criteria for defining credit risk. These critics argue that the major advances in modern financial regulation in recent decades have been less related to changes in bank supervision and more related to changes in the productivity of banking systems. The increased productivity of modern banking is widely believed to result from the adoption of flexible pricing and more flexible decision making tools, as well as improved information and communication technology and risk management capabilities. It has also been argued that changes to regulatory architecture have limited the role of centralised banks in the process of stabilizing financial markets and as such have limited the scope for them to deliver good quality supervisory supervision. The result is that contemporary credit risks are poorly understood by modern regulatory bodies which leaves them unable to provide accurate and reliable information to the decision makers.
Some have also argued that there are problems associated with relying on national banks and their subjective supervisory style, arguing that they are not the appropriate place for regulating financial activities. By relying on a national bank for supervision, investors are left at the mercy of a regulator who may be influenced by political pressures and other outside factors. Also by relying on a national bank for supervision, the structure of supervision is largely regional, with a focus on banking systems within a few countries rather than global supervision. The increasing reliance on local supervision has also resulted in a lack of consistency across national boundaries when it comes to information sharing and decision making. This can result in unclear pricing and variable pricing and also risk relating to information technology, third party information and other aspects of online activity such as pricing of securities and marketplaces.
An alternative approach to supervision of financial activities would be to create a single supervisory mechanism, such as a European System of Financial Supervision (ESFS), which would coordinate and complement the activities of the national competent authorities of the euro area countries. Such a system would give a more coherent picture of the overall supervision of financial activities across the euro area and facilitate comparison of supervisory risks faced by the different institutions. Such a system would require an in-depth assessment of the incentives for regulation of financial activities by the banking union and other EU institutions. Although it would open up many issues of policy and flexibility for the Union institutions, it would also be more efficient and cost effective. It would provide for a more effective and credible supervision of credit institutions, raising the efficiency of the single supervisor and reducing distortion throughout the Union. It would also increase supervision of monetary policies across the euro area and reduce distortions in the pricing of foreign exchange and interest rates.
