StudentShare solutions
Triangle menu

The Darwinian Economy - Essay Example

Not dowloaded yet

Extract of sample
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. Regulatory Failure Regulatory requirements of capital are not equally effective in their totality, especially because of two essential pitfalls that they are susceptible to; discretionary recognition of loss by regulators and bankers and discretionary bailouts by their governments (Barth et al, 2010: p34). Discretionary loss recognition refers to the use of practices of accounting that act to alter the meaning of capital. Instead of utilizing market based concepts, such as bank stock prices, so as to measure risk, as well as establish capital needs, regulators are reliant on concepts of accounting. They check on the bank’s books, rather than on the market assessments of the firm’s held value. Regulatory capital, therefore, is referred to as accounting residual, i.e. the difference between asset accounting value and debt accounting value (Barth et al, 2010: p34). Accountants, book value, of course, are subject strict requirements of law. However, these requirements provide the regulators and bankers with discretion, especially concerning timing, which allows them to delay the acknowledgement of problems, as well as acting on these problems (Barth et al, 2010: p36). In addition, neither regulators nor bankers tend to recognize losses fully during poor economic conditions. The bankers will usually prefer to use delay tactics, such as ever greening, i.e. re-lending of money to the delinquent borrowers in order for these borrowers to pay back ballooning costs of debt service using even more debt to mask their problems. Bank regulators, on their part, always crave system stability, especially forbearance, to avoid worsening or precipitating a crisis. Therefore, they find ways to utilize their allotted discretion so as to downplay the size of losses in order for the banks not to require lost capital replacement (Barth et al, 2010: p34). When the above-mentioned practices are done on a large scale, they can have disastrous results. In the preceding events of the 2008 financial crisis, for instance, their combination caused a failure in the replacement of bank capital in time, which led to an intensification of the eventual ...Show more


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)…
Author : pconnelly
The Darwinian Economy essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"The Darwinian Economy"
with a personal 20% discount.
Grab the best paper

Related Essays

The three chapters on occupation and earnings discuss differences and trends in these domains based on human capital and labor market discrimination. Chapter 5: Differences in Occupations and Earnings: Overview This chapter provides an introductory overview into the various dynamics influencing occupations and earnings including preferences among employers and employees, family issues, financial constraints, education and human capital.
3 pages (750 words) Essay
Evolution and Origin of Diseases: Darwinian Medicine
Evolution and Origin of Diseases: Darwinian Medicine Darwin medicine plays a critical role in the understanding of diseases and their subsequent treatment. Many diseases are caused by pathogens and a better understanding of microorganism will be important to treating diseases.
6 pages (1500 words) Essay
Darwinian Evolution of ethics
Charles Darwin argues that only those with the ability to transform and change with society will be the individuals to survive. In this case, as culture has transformed, only those who were able to adjust will be the ones to survive and continue to live. As behavior changes to be skewed to culture’s values, humans’ beliefs on morals, laws, and ethics transform to fit these values.
3 pages (750 words) Essay
The article mentioned that UK avoided its third recession by registering a growth of 0.3% in the first quarter of 2013. This growth in the economy was observed after a flat performance over the last 18 months. The marginal growth in the economy of UK has been due to the progress in the services sector than contributions from the manufacturing industry.
8 pages (2000 words) Essay
The Darwinian controversy of the nineteenth century
The idea of biological evolution has existed since ancient times, notably among Greek philosophers such as Epicurus and Anaximander. However, scientific theories of evolution were not established until the 18th and 19th centuries, by scientists such as Jean-Babtiste
2 pages (500 words) Essay
This deficit needs to be financed or funded by some sources which are often in the form of increase in the national debt via public or international borrowing. However, this borrowing increases the amount of taxes to be paid because the borrowing is not only to be repaid
6 pages (1500 words) Essay
The first section of the paper is an introductory section in which some general information about mode of financing will be discussed. Further, the section will also discuss about the basic aims
16 pages (4000 words) Essay
Dennett's Darwinian theory of human creativity
By not telling materials that Dr. Frankenstein used to make this robot, Dennett subjects this robot, which he refers to as an intermediate creation that is used as a mere storage-and-delivery device, to suspicion and
2 pages (500 words) Essay
It helps in forecasting gross domestic product (GDP) of a nation (Hubbard1-29). In this discussion, the main objective is to critically evaluate
4 pages (1000 words) Essay
Ricardo’s most important contribution to economics is his theory on comparative advantage which formed the basis of international trade. In 1815 he wrote the Essay on the Influence of Low Price of Corn on the Profits of Stock. In
4 pages (1000 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation