Role of the Federal Government in Regulating Financial Industry after Economic Crisis of 2008 - Essay Example

Role of the Federal Government in Regulating Financial Industry after Economic Crisis of 2008 Role of the Federal Government in Regulating Financial Industry after Economic Crisis of 2008 The government has taken a significant role in regulation of financial industry; in fact, the need for regulation was created during the crisis of 2008. In this case, these regulations have been accompanied by need for reforms, which are attributed to accountability. However, this has led to the need for the government to establish various forms of regulations aimed at protecting consumers and investors, thereby avoiding creation of increased productivity draining on the country’s economy.

The government has been responding to crisis based on consumer confidence, through development of components of legislation aimed at monitoring and controlling financial institutions. Nonetheless, this paper will focus on exploring the government’s role in regulation of financial industry after economic crisis of 2008. The government through relevant administration makes proposals for creation of regulatory agencies for financial products that are offered to consumers such as credit cards (Buckle, 2012).

On the other hand, this administration focus on implementation of regulations that focuses on regulating and monitoring markets to detect derivatives involved in financial contracts that are unclear, which are applied in hedging risky investments. The government has set requirements for the financial institutions to maintain five percent credit risk in conversion of loans into securities. Nevertheless, proposals made by the administration have to be approved by the Congress, though a process that is completed within a period of one year.

Role of the government in regulation of the financial industry can be explored through a focus on the industry of commercial banking; for instance, the government has imposed regulations to monitor and regulate supply of loans, acceptability of deposits, and provision of financial services to customers; in fact, this is done with an aim of protecting the public interest. The government has imposed regulation on the entry of new banks into this industry, whereby they have to seek government approval (Blinder, 2010).

Moreover, there are sanctions imposed on the various forms of deposits and financial instruments that are offered by commercial banks to the public in order to raise funds by the government, and besides, the government takes a vital role of assessing quality of loans, investment, and capital sufficiency through reviews. The government has focused on monitoring banks due to their ability to generate money through various types’ spendable deposits in which they supply loans to customers and invest.

There are volume alterations that are developed by banks and other financial institutions have a substantial correlation based on economic situation base on growth and inflation (Puzzanghera, 2009). On the other hand, the financial industry has numerous competitors focused on generation of money, with a substantial influence on vitality of the economy. In this case, the institutions in the financial industry are expected to comply with these regulations given that the policymakers have significant control on money supply in the economy.

Through these regulations the government has been able to safeguard public savings and control money supply and credit, while attaining country’s broad economic objectives such as increased employment and reduced inflation. In addition, the government has been creating equal chances in the process of accessing credit by the members of the public and various financial services. The government focuses on promoting public confidence in financial systems leading to increased productivity in investment and purchases on commodities.

Furthermore, the regime has been focused on eliminating concentration of financial influence in control of few institutions in the country. The government focuses on offering credit, tax revenue and various services offered in the financial industry in a way that meets special need in other sectors such as agriculture, housing, and small business. After the economic crisis in 2008, the government found the need for formulating new laws, which offered regulatory agencies a way of downsizing and unraveling problems in financial industry (Fisher, 2009).

On the other hand, the government imposed a prohibition on application of outrageous rules by regulators, which would lead to discrimination among financial firms. Therefore, the government has been preventing cases of financial firms being rescued at the expense of the public, through creation of federal agencies that protect the consumers for financial services that regarded abusive in terms of the practices involved. After the crisis, the government focused on sheltering financial systems from risk of drowning by facilitating maintenance of ample capital and liquidity (Keister, Antoine & McAndrews, 2008).

The government has been focused on providing a basis of improving communication between protection agencies and consumers through encouraging transparency and promotion of financial literacy of the public. In this case, the financial institution has been able to attract significant numbers of customers, thereby selling their savings accounts to them among other loans. References Blinder, S. (2010). Quantitative Easing: Entrances and Exit Strategies. Review Federal Reserve Bank of St. Louis. pp.

465–480. Retrieved from: http://research.stlouisfed.org/publications/review/10/11/Blinder.pdf Buckle, E. (2012). The Impact of Government Policy and Regulation on the Financial-Services Industry. Introduction to Banking and Financial Services. Retrieved from: http://highered.mcgraw-hill.com/sites/dl/free/0078034671/933497/ros34671_ch02.pdf Fisher, W. (2009). Reflections on the Financial Crisis: Where Do We Go from Here? Annual Report of the Federal Reserve Bank of Dallas, Retrieved from:http://www.dallasfed.org/assets/documents/fed/annual/2009/ar09b.

pdf Keister, T., Antoine M. & McAndrews, J. (2008). Divorcing Money from Monetary Policy. Federal Reserve Bank of New York Economic Policy Review, pp. 41-56 Retrieved from: www.newyorkfed.org/research/EPR/08v14n2/0809keis.pdf. Puzzanghera, J. (2009). Obama to propose strict new regulation of financial industry. Los Angeles Times. Retrieved from:http://articles.latimes.com/2009/jun/16/business/fi-financial-regs16