Securities and Exchange Commission and Community Reinvestment Act - Research Paper Example

Christopher Fields FIN - 302 4-24-14 Introduction A credit rating refers to an opinion given by a specialized organization on the aspect of credit worthiness of an entity such as the bond issuers or a debt tool such as asset backed securities. This opinion is attributed to a research activity and the presentation is done in a ranking system. Similarly, a credit rating agency refers to a service provider that is specialized in the provision of professionally based credit ratings. Some of the credit agencies include Standard & Poor’s, Moody’s and Fitch. These agencies cover 95% of the world market niche (Gavras, 2010). On the hand, the Securities and Exchange Commission (SEC) plays a watchdog role over businesses to ensure that they discloses meaningful information on securities intended for sale for the investors to make informed decisions. This essay seeks to examine the CRA’s and SEC function of regulation over the commercial banks based on the monetary policy, credit allocation and consumer protection. As a point of departure, the monetary policy on investments require, the CRA’s to investigate the commercial bank’s capital requirements which are required to act as a financial cushion which the commercial banks should sustain in the event their investments suffer losses. Notably, the riskier the assets invested in, the elevated the capital requirements to offset the threat. This brings us to the CRA and SEC function of regulating and playing oversight roles to ensure that the commercial banks adhere to these measures. However, the events that led to the 2008 financial crisis did not meet these conditions. For instance, the commercial banks had moved a considerable amount of assets and liabilities off-balance through intricate legal entities (Gavras, 2010). This move gave a leeway to the banks to remove these volumes of assets and liabilities from the capital requirements calculation and this allowed the banks to take up more risks, save for, this move remained advantageous to them since they were to make more profits before the financial crisis. However, these banks were required to cover their own losses during and after the crisis. It is imperative to note that, in the absence of the bank regulation mechanisms, the banks can operate in the market place with diminutive or no capital at all and this implies that, the governments and insurer depositors will end up holding the bag that bears much risk and high probability of cost failure (Gavras, 2010). This follows that the CRA and SEC’s regulation role in conjunction with the government’s functional aspect on the monetary policy help in protecting the depositors fro losses in event the commercial banks become insolvent. On the case of credit allocation, the CRA’s and SEC play a fundamental role in ascertaining that diverse firms are well rated in terms of debt ability to pay the lenders back. The CRA ensured that all the commercial banks met the criteria of selling the bonds. However, following the events that culminated to the 2008 financial crisis, it was revealed that the CRA’s failed to carry out this process of credit rating in a professional manner because some commercial banks were said to have bought their way in to better and positional rating which did not reflect their real financial picture (Gavras 2010). As a result, numerous depository firms and investors suffered losses following the insolvency of these commercial banks. These losses are immensely attributed to the CRA’s unprofessional credit rating. These actions call for investigation and monitoring of the CRA’s conflicts of interest. Consumer protection is another fundamental aspect in investment market place. The CRA and SEC ensure that the creditors and other financing organizations provide all the necessary information to the consumers to make a desirable and informed decision on investment. With correct information, the consumers are protected from rogue firms that would want to misrepresent themselves as well credited and rated financial companies. Some of the measures to be undertaken to ensure that the 2008 financial crisis do not reoccur include financial reforms, which include regulation acts to monitor and control the activities of the CRA and SEC. This is because of the sole reason that, these organizations’ unprofessional activities are closely linked to the 2008 crisis. On the equal measure, the government should consider establishing independent government-sponsored rating agencies to ensure that all decisions made when considering credit worthiness on investment organization such as the commercial banks are valid and viable in the investments market niche. This move will lock out all the rogue firms that would have bought their way into the market place. The institution can use Kerberos system information management to secure its financial and customer records. Kerberos is an authentication system or protocol created or developed by Massachusetts Institute of Technology (MIT) and adopted by most operating systems today. A basic knowledge of Kerberos is required to determine its usefulness in access control mechanisms provided by the operating system. Kerberos authentication process depends on certain formatted information or data packets referred to as tickets. The tickets are very vital in that they go via the networks rather than passwords. Conveying tickets rather than passwords makes the process of authentication resistant to threats or attacks that can intercept the network traffic (Institute, 2012). In the Kerberos milieu, the process of authentication starts at logon. There are several steps used to explain the process of Kerberos authentication. i. When a client or a user enters the login details (username and password), the computer transmits the username to the KDC that has master databases of specific keys for every step in its arena. ii. The KDC searches the client’s master key depending on the client password. The KDC then develops TGT and a session key to share with the client. The TGT incorporates a copy of S.A, time of expiry and the client name. The KKDC then encrypts the tickets that the KDC recognizes. iii. The user computer gets the data or message from the KDC and operates the password via a one way hashing role that changes the password into the client’s KA. iv. If the user requires getting resources on a certain server of the same domain, it communicates with the KDC. v. The KDC develops a duo of tickets, one for the user and another one for the server on which the user requires to access resources. vi. The KDC takes the ticket of the server and shields or encrypts it utilizing the master key. When the server gets the tickets, the client decrypts it utilizing S.A. This renders the KAB to the user and also renders or exposes the tickets of the server. After communication between the KAB and the server, the server decrypts the tickets by the use of its KB. In turn, this allows access to the KAB that can decrypt the timestamp for the user. Notable tools employed in the identification of financial related online risks include the Web inspect scanner by Hewlett, Web vulnerability scanner by Acunetix and the watchfire Appscan by IBM. Application of the above systems would then go ahead in selective selections of authentic databases, passwords, and user identities as far as the internet security is concerned. In order to tackle various threats and risks, sections of clinical systems have adopted wireless networks, which they use to present and obtain information at the point of care. For example, this has been applied at bedsides (Gavras, 2010). The wireless network policy enables the use of wireless network infrastructure to handle customer’s information systems. This kind of system with proper coding plays a significant role in ensuring that there is integrity, confidentiality, and reliable availability of patient’s information. If proper securing of information is not enhanced under such circumstances, it would greatly affect the organizations internal systems. The wireless network system ensures that proper regulations and procedures are put in place to handle the patient’s information systems. These include performance logs and network security (Institute, 2012). Training of steps in this field would then enable justified users such as permitted staff to understand encryptions and authentication of wireless mechanisms that are in use. To identify where unauthorized access points and rogue users are located, system administrators should use wireless scanning tools. On the same note, banks offering free access to wireless network for the public must always ensure that the person accessing information is authenticated. Regulations on whether the terms of access are acceptable by the organization must form the guidelines of access by public members. The financial institutions should clarify the entire wireless network access is segregated within internal network. The wireless network policy if therefore put in place will have the various advantages over fixed network systems since its portable thus easily applicable within the workstation. If effectively employed, the wireless network system is one of the fastest ways to enable information flow within the organization system (Institute, 2012). In conclusion, the 2008 financial crisis is attributed to the messes and miscalculation by the CRA and other credit rating agencies. Future crisis can be avoided if the government establishes independent credit rating agencies, which are directly monitored by the Government. References Gavras, P. (January 01, 2010). Regulatory abdication as public policy: Government failure and the real conflicts of interest of credit rating agencies. Journal of Southeast European and Black Sea Studies, 10, 4.) Institute, R. M. (2012). Global Credit Review. Singapore: World Scientific Pub. Co. Lamandini, M. (January 01, 2009). Credit Rating Agencies (CRAs) and European Regulation. European Company Law, 6, 3.) Read More