Study: My Understanding of Regulations
The seen reason behind financial crisis was because of not having effective regulation. There were actually some parts on the financial system that was really hit hard by the crisis and even both the large commercial banks and government-sponsored enterprise failed in preventing such systemic risk or substantial loss to people on a particular financial product.
Under the said regulatory system, the amount for such injections have been increased due to several weaknesses. These failures greatly affected taxpayers and lost big sums of money and it also damaged the financial system’s ability to match savers and borrowers as well as to provide them with information and risk-sharing service.
Improvements on regulations for protecting society should put a focus on revisions and capital requirement, developing rigorous process in bankruptcy to resolve the insolvency of complex financial institutions as well as in reducing interconnectedness of issues that relates with credit default swap contracts by using clearing-houses and exchanges.
The regulations likewise play a vital role to protect individuals. The economic theories of regulation could stress on the need of providing adequate information and transparency. Also, behavioral economic arguments likewise suggest on the importance of simplicity in consumer investor options. The recent financial crisis is where regulation plays a vital role to greater transparency when it comes to the securitization and information on mortgage contracts.
There also are some overarching themes of which links on the regulatory needs on society and for individuals as well. The first one would be on the need of regulatory reform in focusing on the “too big to fail”. It’s actually obvious that failures on policy of dealing with with exacerbated systemic risk at the time of the financial crisis. The “too big to fail” problems also led to mispricing on risks which gave people a less safe return than what they have bargained for and the disruptions on liquidity harmed the borrowers as well.
The other one is on the economic concern that over-regulation on financial instruments and institutions lead in causing harm, which is by raising the cost of funds to household and to business borrowers. A good way to handle this is to design regulations in order to ensure proper pricing on the risks as well as on the information on the risks and that this approach likewise offers the right balance of protection for both individuals and society.
On the consumer protection agency, it is very important that the prudential supervisor will give its input to the consumer protection body about the impacts of the regulatory actions on the safety and the soundness of financial systems and that conflicts between supervisory and consumer body should be handled and resolved by the treasury.