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Contemporary Issues in Finance - Essay Example

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Contemporary Issues in Finance

This paper is a brief article about the financial crisis which was being identified by the end of 2007 till the beginning of 2008. It was due to the ill-effects of the crisis that regulatory reforms were taken by US, UK and EU regions. This paper will thereby focus on the regulatory reforms adopted by these nations in the milieu of the 2008 financial crisis. Regulatory Framework of US Financial crisis is often termed as an unknown disturbance which leads to erosion of the total financial market of a country or a nation. By the end of 2007, with the identification of the financial crisis, US and other globalised economies become highly concerned about their survival as a global power. Most businesses ruined and were forecasted to lose approximately $ 2.7 trillion in this crisis (Rude, 2008). As a result, unemployment was at its highest stage. With this concern, the US government concentrated on keeping the banks and most significant businesses alive to overcome the unwanted danger. The crisis acted promptly drafting many important pieces of legislation or necessary changes and charting the post-crisis financial regulatory framework. But it was not an easy task; it comprised of numerous hurdles within it. The fundamental role in reforming the financial policies in the US was played by Basel Committee on Banking Supervision (BCBS) and Financial Stability Board (FSB). They developed a DFA (Dodd-Frank Act), which is a framework of reforms to prevent the consequences arising due to such turmoil (Rude, 2008). The vital elements in reformation of US economy relates to the steps taken to develop a financially stable future as well as resizing of the international financial system, so that the need of the economy can be better served (Rude, 2008). It is worth mentioning that the decline of capital regulation in US was not only due to the ad hoc financial events but was also due to a direct consequence of ineffective design and substance of regulatory capital initiates. The detailed structure could not prevent the large financial institutions from failing. Apart from this, the unskilled leverage ratio turned out to be the most important constraint which ultimately proved beneficial (Rude, 2008). Requirement of capital was the most prevailing area of concern against bank failures after the crisis. Furthermore, the resolution procedures, another regulatory reform which was considered as a better process other than bankruptcy to deal with the problems of insolvency of financial institutions. This states that the framework of banks needed to be extended to other financial institutions in order to safeguard the large institutions in the financial services market. After the crisis, there was bail-out of many institutions due their inability to bear the failure of cross-border banks (Rude, 2008). This led to other regulatory reforms in the aftermath of the crisis, which resulted in dramatically increase of capital and liquidity buffers of the bank. The reforms enforced after the crisis mainly focuses on two perspectives, i.e. market-restricting approach and market-harnessing approach. The market-restricting approach mainly concentrates on deflating the commercial institutions along with the intention to limit the size of these institutions and reduce the investments in the market. On the other ...Show more

Summary

Contemporary Issues in Finance 1 Table of Contents Table of Contents 1 2 Introduction 3 Regulatory Framework of US 3 Regulatory Framework of UK 6 Regulatory Framework of EUs 7 Similarities or Differences Present In the Regulatory Reforms of US, UK and EU’s after Crisis 8 Conclusion 10 Introduction For hundreds of years, economic crisis has been described on the financial landscape…
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