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

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Claudia Trost Professor Fligstein/GSI: Jessica Schirmer Sociology 120 1 December 2016 Adequate Capital Requirements and It’s Role in the Financial Crisis of 2008 INTRODUCTION The financial crisis of 2007-2009 sent shock waves around the world, affecting some of the world’s largest financial institutions, along with negatively impacting millions of American citizens. Who is to blame for such a crisis and how do we try to prevent another? Well, the cause of this crisis is not merely that simple. This crisis was caused by a complex series of events with all actors within the financial market to blame. However, I wanted to understand how these various actors and causes all occurred while under the supposed watchful eye of regulators, whose role within the market is based upon the regulation of these financial institutions to prevent crisis from occurring in the first place. Regulators are responsible for overseeing various components within the banking industry; however, one component that I was most interested in was capital adequacy requirements. I wanted to understand why capital requirements were created in the first place, how they had evolved over time and what role they played in the crisis. Lastly, I believe that capital requirements are a self-evident prevention method in inhibiting the collapse of banks due to risky lending. Therefore, with the creation of adequate capital requirements going forward, we could have one solution for a very complex problem. BANKING

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