Adequate Capital Requirements And It 's Role Of The Financial Crisis

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

Many people today would consider the 2008, United States financial crisis a simple “malfunction” or “mistake”, but it was nothing close to that. Contrary to what many believe, renowned economists and financial advisors regarded the financial crisis of 2007 and 2008 to be the most devastating crisis since the Great Depression of the 1930’s. To make matters worse, the decline in the economy expanded nationwide, resulting in the recession of 2007 to 2009 (Brue). David Einhorn, CEO of GreenHorn Capital, even goes as far as to say "What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual. In my view, the crisis wasn't an accident. We didn't get unlucky. The crisis came

However, it is clear that these unethical practices served as catalyzers of the financial crisis. Even though many financial institutions that could be held responsible for the 2008 crisis no longer exist and that legislation, as the Dodd-Frank, has been passed in order to further regulate financial institutions, many of the institutions responsible for the crisis are still in the core of the economy, controlling a very big part of it. It might be impossible for the general public to fight against a possible future recession, as the power of an individual is close to insignificant in comparison to the power of an established financial

The Great Recession inflicted abundant harm in the U.S. and global economy; 8.7 million jobs vanished (Center on Budget), 9.3 million Americans lost their homes (Kusisto), and the U.S. GDP fell below what the economy was capable to produce (Center on Budget). The financial crisis was unforeseen by millions and few predicted that the market would enter a recession. Due to the impact that the recession had, several studies have been conducted in order to determine what caused the recession and if it could have been prevented. Government intervention played a key role in the crisis by providing the bailout money that saved those “Too Big to Fail” institutions. Due to the amount of money invested in the bailout and the damage that the financial crisis had on the U.S. population, “Too Big to Fail Banks”, and financial regulation are two of the biggest focuses of the presidential candidates. Politicians might assure voters that change will occur, but is it to late for change to be efficient, are the financial institutions making the same mistakes that led to the financial crisis?

Swagel, Phillip. " Legal, Political, And Institutional Constraints On The Financial Crisis Policy Response†." Journal Of Economic Perspectives 29.2 (2015): 107-122. America: History and Life with Full Text. Web. 8 April.

In 2008, the United States encountered a financial crisis that left millions of Americans unemployed and resulted in trillions of dollars lost. The financial regulatory system was the main reason for the cause of the financial crisis by allowing financial institutions to operate with little or no supervision. It also allowed for lenders to use hidden fees and fine print to take advantage of consumers (Wolin, 2011). President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the crisis on July 21, 2010, the intention of this act is to prevent another major collapse of the financial institution industry and geared to protecting consumers with rules to keep borrowers from abusive lending and mortgage practices

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

In addition to the above the internal incentive to bank should be reduced by requiring greater capital requirements as well as improving upon the definition of what qualifies to be capital. Further in line with the answer to question 3, risk management systems in financial institutions need to be redefined and strengthened to more comprehensively identify, evaluate, manage and monitor risks.

The Dodd-Frank Act put a considerable burden on financial regulators whom have to work out the details in order to implement its vision. It includes a variety of points relating to the prevention of a future crisis (Kim & Muldoon 2015). Some of these major points include: (1) The creation of a new Financial Stability Oversight Council, comprising existing regulators, to be responsible for overseeing any financial institution or set of market circumstances determined to be likely to result in risk to the overall economy, (2) A reallocation of banking oversight responsibility among the Federal Reserve System, the Comptroller of the Currency, and the FDIC, requiring the Federal Reserve Board to supervise nonbank financial companies “that may

Firstly, the Dodd–Frank Act pushes forward the reformation of America's financial regulatory system. Several new regulatory authorities are set up to enhance the government supervision and administration of the industry. The Financial Stability Oversight Council is established to identify material risks to financial stability, with the support from Office of Financial Research. Moreover, Fed is entitled to exercise additional superintendence beyond banks.

One of the principal functions of financial oversight authorities in achieving a safer, more flexible, and more stable monetary and financial system is to regulate and supervise various financial entities. But following the crisis of 2007, regulatory authorities in the whole world were engaged in a fundamental reconsideration of how they approach financial regulation and supervision. Performing these functions through micro- prudential regulation and supervision of banks, holding companies, their affiliates and other entities, including nonbank financial companies, proved to be insufficient to ensure and maintain financial stability of a country, union or the world as a whole.

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.

The purpose of this paper is to show that the “regulatory capture” has played a role not easily measurable in causing the global financial crisis. To illustrate this, the first step will to describe the “regulatory capture” in its three possible qualifications; then, I will explain, providing some examples, how each of these categories played a possible role in posing the basis for the financial crisis. While illustrating the different forms of capture I will present some questions that leave space to different answers. Finally, I will conclude that the regulatory capture have surely played a role in generating the crisis, but it is not possible to evaluate the effective role it had in causing it.

The goal of financial regulation is to increase efficiency in the market, as well as enhance the market 's ability to absorb shock caused by financial instability. There are many reasons for financial instability, but it can be narrowed down to

The regulatory capital is the minimum amount of capital that the financial regulator required the banks or the financial institutions to hold (Elizalde & Repullo, n.d.). It is used to help to avoid to risk and reduce the losses that we may have but can’t forecast. ("Bank Regulatory Capital – Quick Reference", 2016). The figure of the financial capital is directly set by the financial regulators. The balance sheet capital is the equity part that we recorded on the balance sheet. The regulatory capital is like a standard that all the financial institutions have to achieve. The financial institutions must maintain their capital amount over the minimum amount that the financial regulator required (Elizalde & Repullo, n.d.). However, the