Micro Prudential Regulation

Prior to the financial crisis, the overall responsibility for financial oversight was divided among several different agencies. These agencies and their “varying rules and standards led to certain entities not being regulated at all, with others subject to less oversight than their peer

With this title two new government departments are created The Financial stability Oversight Council and the Office of Financial Research. The authority of the Board of Governors of the Federal Reserve System is it expanded also to allow them to supervise nonbank financial companies and certain bank holding companies that could affect the health of the country’s economy.

Intervention by the central bank is warranted to avoid welfare loss for the institution’s stakeholders since it may be that due to access to supervisory information, the authorities are in a better position to evaluate the financial position of a bank rather than the inter-bank market. The other situation in which the central bank may be the LOLR is when the stability of the entire financial system may be threatened following the failure of a solvent bank. This widespread financial instability may put to risk the ability of the financial system to carry out its primary functions.

This essay shall critically analyze the impact of the legislative and financial regulatory responses regarding the financial crisis in 07/08. Including responses from HM Treasury Management, legislations being passed such as the 08/09 Banking Act, Governmental policies, Bank of England, Financial Service Authority and the Financial Services Act creating a new regulatory system. These key functions shall give an outlook and help towards analyzing the impacts of such responses.

Over the past several decades the world has seen what the culprits are with financial instability. From the Great Depression, to the housing bubble crisis of 2008, the economy suffers from many fundamental problems that damper our financial situation. In The Bankers’ New Clothes, Anat Admati and Martin Hellwig explain the struggles of banking regulation in order to gain a better understanding of financial intermediation and how it affects us. Admati and Hellwig provide a forceful and accessible analysis of the recent financial crisis and also offer proposals on how to prevent any future financial failures. The way they achieve this is by engaging us, in plain language, by cutting through the confusion and acknowledging the issues of banking.

This way, such is critical to acknowledge the need to strengthen policy coordination and regulatory harmonization among the ASEAN economies. The experiences that can be borrowed from recent events on the European Union highlight the significance of adopting a regional perspective to financial stability. A supranational oversight mechanism is likely to be of vital important in a single market to facilitate financial services. It is essential that a single resolution regime that has a common backstop such as deposit insurance is considered in

“The ongoing economic and financial turmoil that started in 2007 has again put financial institutions at the centre of harsh debate and massive critism,……banks had gradually relaxed their screening and monitoring standards before the crisis, especially in the US subprime mortgage market. Then, they sharply curtailed new credit and forced firms to reduce their investments, hence propagating the financial crisis to the real economy,” (J.Godlewski, 2013, p1).

The term Global Financial Crisis (GFC) refers to the financial crisis of 2008-2009 that, according to leading economists, is the worst financial crisis since the Great Depression (Eigner, 2015). The crisis began in 2007 due to a mortgage market failure in the United States and in the following year, with the collapse of the Lehman Brothers investment bank, advanced into an international banking crisis, which then developed into a global economic crisis, The Great Recession (Williams, 2010). This essay will conclude that that due to private sector financial management, government regulations and legislation and deregulation were at the root cause of the crisis and give explanations surrounding this criteria. To gain a detailed understanding

After the collapse of Lehman Brothers, the G-20 became the most important forum for economic cooperation . Its positive impact in the realm of financial regulation can be determined by two main results. Firstly, the most important emerging nations were included in the premier league, thus rebalancing most part of worldwide financial authorities, increasing the number of players who now participate in financial regulation. Secondly, the G-20 started several initiatives regarding worldwide financial regulation. It set important deadlines that in some cases were not met. Even though the G-20 is a political organization, the management of the global financial regulatory agenda has been mostly performed by the IMF and FSB. The IMF performed an important task via its Financial Sector Assessment Program (FSAP). The FSAP became in 2010 an important regular feature within 25 nations, hence providing a comprehensive assessment of a nations’ financial stability. The FSB has a multidimensional role and is still evolving. It established, usually under the request of the G-20 authorities, several working groups, as well as it manages tasks in numerous fronts. Nonetheless, the actual effort of rulemaking and standard-setting rests at the specialized global authorities’ realm. Several of its reports are directed to global bodies, which have FSB memberships, such as the IOSCO and the Basel Committee. Therefore, the contribution given by the

Besides, the governance bodies are interested in coordinating specific mechanisms regarding accountability, legitimacy, and transparency (Jackson, 2008). Consequently, they emphasize on transparency, bureaucratic participation, reasoned decisions, and accessibility to assessment mechanisms. Besides, they focus on circumvention of unnecessary measures and illegitimate avoidance expectations (Busch & Reinhardt, 2003). Global governance is made up of an incongruent assortment of regulatory entities that facilitate decision making and administrative activities facing member states. Such bodies include Basel Committee that regulate and supervise banking sector through of the territories of the member states. This committee liaises between governments of the member countries, the secretariat of the global governance entities and the banks.

In this section, we will describe the Basel Committee’s approach to financial regulation. The approach is described trough an exposition and analysis of the three Basel frameworks. We are going to explain all three of them, as the preparation of new regulation is build on top of the existing ones. It will therefore also be interesting to see in which direction the Basel Committee has changed the regulation

The rapidly grow of financial innovation and technology in the international financial market have encouraged an increase in the significant role of compliance in financial service firms over the last decade. Particularly, aftermath of the 2008 global financial crisis, to ensure the financial stability and protect the future crisis, regulators have continued to pay attention on improved requirement of capital and liquidity as well as risk management and corporate governance in the financial intermediary. Additionally, policy makers also have focused on issues associated with stakeholders of the financial service firms and public interest such as consumer protection, insider trading, LIBOR manipulation and money laundering. An effective compliance, risk management and internal audit are major mechanisms to create strong corporate governance (The Chartered Institute of Internal Auditors, 2013), which can reduce risks arising from failure to comply regulations and non-compliance in the financial institutions.

The global financial marketplace is a maze, a tumor, a mess. Scholars are trying to understand this complex system which remains extremely interconnected due to globalization over time. It is extremely important to understand the marketplace because it has an effect on the whole entire world. This marketplace also needs regulations to protect consumers who end up suffering as a result of poor decision-making by financial institutions. The financial marketplace over time has become more and more regulated but still, there is more that needs to be done, both domestically and internationally. How many crises is it going to take for an increase in regulations? There has been the crisis in Thailand, on July 2, 1997, the series of Latin American

While the term ‘bank resolution’ is a relatively recently engineered concept, various references and forms of it have developed over the last decade. The BCBS Supervisory Guidance on Dealing with Weak Banks, 2002 refers in detail to the characteristics of a weak bank and the various methods of dealing with them, including bank resolution. While this Guidance Paper refers to bank resolution as restructuring or closure of a weak bank, the IMF paper on Managing Systemic Banking Crises, 2003, refers to bank resolution as the intervention or takeover of insolvent or non-viable institutions by the authorities. Almost ten years later, after the experiences of the financial crisis, the definition of bank resolution has narrowed down to the special arrangements for banks that are failing or likely to fail. This more niche definition is utilized in post-financial crisis context, since earlier intervention (i.e. prior to the state of insolvency of a bank) is necessary to avoid greater systemic damage to the financial system. Bank resolution has now evolved to a more specific intervention mechanism where authorities identify problem banks before they become insolvent and take action to restore the bank to viability to prevent financial instability.

Balancing between supervision and regulation over the safety of the financial markets, customer’s protection, and between the development of the markets mentioned, also increase its appeal.