Instructor 11th November 2011 Regulatory Response to the Financial Crisis which began in 2007 Introduction The period 2007 to 2010 was a crucial period in the history of most if not all countries around the world. The crisis which rocked the financial system was described by many as the most severe downturn since the Great Depression of the 1930’s (Chang 2010, p…
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1). The debate still rages as to the real cause of the crisis. King (2011, p. 48) indicates that a major contributor to the global crisis was global imbalances which requires rebalancing of global demand in order to facilitate a sustainable recovery. This paper provides a brief synopsis of the events and the regulations which followed in the US, Germany, UK, Netherlands and Spain. According to Blundell-Wignall and Atkinson (2010, p. 2) every banking crisis has been associated with major disruptions as well as recessions and this is the reason for certain bank regulations. New regulatory responses are generated by every global financial crisis (Helleiner 2010). This was no different for the crisis which started in 2007 resulting in what has been described as ‘the Great Recession.’ Regulatory Response in the United States According to the U.S. Senate Republican Policy Committee (2010) a multitude of events led to the Great Recession of 2008-2009. They include the housing bubble which was caused by cheap credit made to persons who would not qualify for a loan under normal circumstances; low interest rates; failure of regulatory agencies; and inflated rating grades provided by credit rating agencies. In order to mitigate the crisis United States government introduced what they described as Targeted Asset Relief Program (TARP) and the Temporary Liquidity Guarantee Program (TLGP) – (Eubanks 2010b, p. 2). The TARP was later expanded to include automobile companies such as GM and Chrysler (U.S. Senate Republican Policy Committee 2010). A number of regulatory proposals were put forward in relation to consumer protection, modernisation of the regulatory system and restoring stability (Eubanks 2010a). These led to the Dodd-Frank Wall Street Reform and Consumer Protection Act of July 2010 and a consolidation of the regulatory bodies. The objective of the act is to “create a sound economic foundation to grow jobs, protect consumers, rein in Wall Street and big bonuses, end bailouts and too big to fail, prevent another financial crisis”. According to Lo (2009, p. 27) there has been a recent proposal to suspend Fair-Value – FASB Statement No. 157. Fair-value or mark-to-market accounting requires the valuations of firms’ asset at fair market prices and not on a historical cost basis. The practice which has forced a number of firms to write down their assets and thus triggering defaults and insolvencies has been blamed for the financial crisis. Regulatory Response in Germany In Germany the single regulator of financial services – the German Financial Supervisory Authority which was established in 2002 in order to improve stability and integrity in the German financial system had its regulatory authority greatly increased in 2009. This was done in order to improve its capacity to manage the financial crisis. The act for strengthening the financial market and insurance supervision became effective on August 1, 2009 (Eubanks 2010b). This act was a measure which had the objective of increasing the preventative, supervisory and intervening powers of this regulatory authority. The act also facilitated the strengthening of informational and reporting requirements for financial institutions, insurance companies
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According to this discussion the banks and the financial institutions suffered from the crisis. The governments of almost all the nations had to come up with packages that are required to move out from such a situation. The financial crisis will shed its impacts around the globe due to globalization.
This would need state-of-the art production facilities and recruiting quality engineers to show their quality with the manufacturing of the smart phone. The company already has its production facilities and required technology in order to launch the venture of ALO PART A Past year sales figures show that smart phone users have increased to 11 million buyers and the market itself has registered a growth of 70%.
Economy affects all aspects of people’s life, which affirms the importance of monitoring the global economic performance. Countries have established numerous financial crisis regulations that aim at checking emergence of crisis in the future. Particularly, the OECD countries are presently practicing various regulatory measures to safeguard the world’s economy.
1. What happened in the 2007 financial crisis? Through asymmetric information hence adverse selection, the 2007 financial crisis was caused by the action and inaction by the government (Lounsbury 2010), which created a platform over which both banks, and bank-like institution taking excessive risks specifically in the mortgage backed security market (BBC News 2009).
EVALUATE THE MAIN EU REGULATORY REACTIONS TO THE FINANCIAL CRISIS INCLUDING THE CHANGES TO THE EU REGULATORY PROCESS FOR FINANCIAL SERVICES (Author’s name) (Institutional Affiliation) Introduction The financial crisis that rocked the European Union from 2007-2009 affected the economies largely because the mega financial institutions within Europe were operating in a similar business model to that of the United States prior to the crisis.
occurred in the period of 2007 to 2009 indicated the implications of excessive neo-liberal approach of the economies which was developed by the government through policies that encourage huge spending in the economy with an expectation of growth of the national economic status.
When considering the possible causes for this economic situation, fundamental defect of the free market system is the prominent reason for the crisis. In the US economy, a secure and sustainable economic order is not ensured by the economic regulatory. As a result, banks and financial institutions in the developed countries are not restricted from spending more than what they can afford.
system had been increasingly deregulated in an attempt to achieve greater efficiency, but the increasingly liberal policies have progressed to a point when innovative contracts have been implemented with less than diligent study and with a disregard for risk in the face of
The financial collapse was worsened by the financial institutions ability to use the loopholes existing in capital regulation. Banks increased debt while maintaining their capital requirements. This was made possible by moving assets into special
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