The Darwinian Economy - Essay Example

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The Darwinian Economy

During a House Financial Services Committee hearing, it was put across that the simplest way to frame regulation was capital. Capital informs the amount of risk that financial institutions can take overall. It assures that the institutions have cushions that can absorb extreme shocks. Capital requirements are designed so as, given the uncertainty about the future and ignorance that there is concerning some elements of risk, it will ensure a greater cushion for absorption of loss and save bankers from consequences of judgment mistakes, as well as global uncertainty. The debate on whether to regulate or not to regulate has a great deal at stake. The global financial systems and their stability are dependent on adequate and effective capital requirements for these institutions with the 2008 crisis revealing vital problems with requirements as they currently stand (Ferguson, 2012: p1). However, economic recovery prospects, in Britain, the EU, and the US are heavily dependent on a steady credit flow, as well as lending. In addition, the available evidence is suggestive of the fact that over the top increment of capital requirements, in deed, will cause a credit crunch. Therefore, while financial institutions do require some level of regulation, they should not be over-regulated. ...Show more

Summary

The Darwinian Economy Name: Institution: THE DARWINIAN ECONOMY Introduction After the financial crisis, the initial drafts chronicling its history contended that, after financial institutions were de-regulated after 1980, financiers went on a roll with banks blowing up and needing to be bailed out, thus, had to be fettered again (Ferguson, 2012: p1)…
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