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Effects of Regulation/Deregulation in the Recent Financial Crisis - Assignment Example

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The regulation of the financial system involves setting rules and establishing an enforcement mechanism that has been designed to control the operations of the financial system’s constituent institutions, markets, and instruments. …
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Effects of Regulation/Deregulation in the Recent Financial Crisis
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O’Hara notes that the regulation of the financial system may be through direct government regulation1 or through self-regulation2 or even through corporate governance3. OHara argues that the primary and the long lasting reason for regulation is to raise the state revenue. Other objectives include the need to minimize the risk of financial crises, and to limit or channel financial power to some advantage.
However, the reasons for regulating the financial system would be influenced by the status of the economy in terms of growth and development. In the developing economies, the state depends heavily on the seignorage for revenue. Governments can require that banks obtain charter as a means of limiting competition among money suppliers, and enable them to maintain control over seignorage. In addition to securing a revenue base, regulation of the financial system is also aimed at preserving the liquidity of financial systems and forestalling financial panic. Central banks have been used as the lenders of last resort so as to promote the soundness and stability of the modern financial system. Government provision of deposit insurance can also be used to prevent bank runs. OHara continues to say that the existence of a market failure that needs correction such as a potential financial crisis, or clear public advantage and the need to control abuses of power justify the need for financial regulation. ...Download file to see next pagesRead More
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