Finance and Accounting - Essay Example

After assessing things like stock market capitalization, employment, profits, contribution to Gross Domestic Product and the likes, it is clear that the financial system expanded by a big margin since 1990. For instance, by 1989 the global financial assets were about 50 trillion but increased to about 200 trillion by the end of 2007 (Anderloni, 2009:23). Generally, analysts describe financial system innovation as the key to ending the financial crisis and woes that are facing the world’s economy. This is because; assessments carried out to establish how the system has been working reveal that it is through innovation of new financial tools that can put to an end the world’s common complex financial crisis. As illustrated by progress of financial innovations, the way people handled financial matters twenty years ago is different today. Advancements and innovations regarding financial technology transformed apparently due to need for better financial management brought about by time and technology. Globally, people are able to face and overcome challenges regarding finances as a result of financial innovative systems. However, before regulators start making decisions on how to regulate, if they should, activities of financial institutions, it is vital that they consider the consequences of their actions. Since it was through financial system innovation that global financial assets rose from about 50 trillion to about 200 trillion globally within a period of only eight years, these benefits should deter regulators from imposing restrictions on activities carried out by financial institutions. Furthermore, it is within the same period when financial depth increased from 200 percent of world Gross Domestic Product to 400 percent (Zeng, 2011:133). These remarkable financial systems of innovation played an important in transforming the financial sector globally. While on the verge of prominently addressing challenges and risks that the financial system innovation may pose to the general financial sector, there is also the need to view the immense economic gains and benefits that flows from a healthy financial instrument or institution. With the increasing jiggle or sophistication and size, depth wise, of financial markets, that promotes economic development or growth it is crucial to allocate capital in places where it can be highly productive. At the same time, dispersion of perils or risks more widely and broadly all over the financial system has up to this far raised the system’s resilience and the economies shocks (Welfens, 2011:67). Therefore, it is advisable for regulators to be cautious when seeking to implement regulations of financial innovations as they also seek to address risks accompanying the innovation. Financial system innovations have come with lots of potential benefits that financial regulators find them in need of monitoring. Nevertheless, while developing a framework for regulating these benefits brought about by the financial system innovation it is essential to have a clear thinking. The regulators should be explicit on how to regulate public policies, if any, and how fresh innovations or developments threaten or undermine those objectives. In addition, regulator should also consider the roles played by the market in controlling risks that pertain to public objectives since market discipline can be prove to be a key element in a well-functioning regulatory project. Therefore, as a test of consistency, all regulations should ...Show more