The Basics of Financial Regulations

The seen reason behind financial crisis was because of not having effective regulation. Some parts of the financial system were hit hard by the crisis and the government-sponsored enterprises and large commercial banks failed in preventing the systemic risk or the substantial loss for those on particular financial products.

Under the said regulatory system, the amount for such injections have been increased due to several weaknesses. Such failures does not only cost taxpayers with big sums of money, but they likewise damaged the financial system's ability in matching savers and borrowers and also on providing risk-sharing and information services at .

The improvements on regulation for protecting society should focus on revisions on capital requirements, development of rigorous process on bankruptcy to resolve insolvency of complex financial institutions as well as on the reduction of interconnectedness issues of credit default swap contracts through using clearing-houses and exchanges.

The regulations at likewise play a vital role to protect individuals. Any economic theory of regulation could potentially stress the need in providing adequate information and transparency. Behavioral economic arguments likewise suggest the importance of simplicity on the consumer investor option. 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 are in fact some overarching themes which links to the regulatory needs of society and for people as well. The very first thing is on the need of a regulatory reform to focus on the "too big to fail". It's obvious that failures on the policy of dealing with exacerbated systemic risk on the time of the financial crisis. Too big to fail issues likewise led to mispricing on the risks that later on gave people with less safe return than what they have bargained for and that the disruptions on liquidity harmed the borrowers.

The other one would be on the economic concern to which over-regulation on financial instruments and institutions that lead to cause harm through the case of raising cost of funds to household and business borrowers. The secret to this is to design regulation in order to ensure proper pricing of risks and information with regards to risks and this approach offers the appropriate balance of protection for both the society and individual.

With regards to the consumer protection agency, it's essential for the prudential supervisor to provide its input to the consumer protection body with regards to the impact of the regulatory actions on the safety and soundness of the financial system and conflicts between the supervisory and consumer protection body needs to be resolved by the treasury. Visit this website at and learn more about finance.