Competition Policy For Financial Crisis Essay

During the 1930s, the most prominent reason for U.S. banking regulation was to prevent bank panics and more economic disaster like those that had been experienced during the Great Depression. Later deregulation and financial innovation in industrialized countries during the 1980s eroded banks monopoly power, thus weakening their banking systems and seeming to embody the fears of post-Depression policy makers who instituted regulation in the first place. Fear that individual bank failures could spread across international borders creates pressure to harmonize bank regulation worldwide. One advocate suggests that universal banking, at least for industrialized countries with internationally active banks, would “level the playing field” by eliminating competitive advantages created by government subsidies. Although this is a valid point, one of the major driving forces behind the globalization of the banking world is the ability of banks to take

The Glass-Steagall Act of 1933 that defined the roles for commercial banks, investments banks and insurance firms was over ridden by the Gramm-Leach-Bliley Act (1999) which repealed the provisions that restricted affiliations in financial institutions. Hence one solution is to overcome the incentive problem and the conflict of interests that arise when financial institutions simultaneously undertake financial activities of varied nature.

‘ in markets with concentrated banking, potential entrants face greater difficulty gaining access to credit than in markets in which banking is more competitive.' ( journal) this is because if the banking industry is competitive they would try different ways in order to attract different customers, moreover they would be in favour of consumers as they do not want to lose them to competitors.

The phased introduction of new banks in the private sector and expansion in the number of foreign banks provided for a new level of competition. Furthermore, increasingly tight capital adequacy norms, prudential and supervision norms were to apply equally across all banks, regardless of their ownership. [34]

The banking industry is highly competitive. The financial services industry has beenaround for hundreds of years and just about everyone who needs banking servicesalready has them. Because of this, banks must attempt to lure clients away fromcompetitor banks. They do this by offering lower financing, preferred rates andinvestment services. The banking sector is in a race to see who can offer both the

Marconi (2010) believes that the role played by the institutional investors propagated the financial crises. Institutional investors, which is both, individual or companies do enjoy the benefits of reduced commission preferential regulations. This is due to their large and professional investments. Institutional investors like the mutual funds, pension funds, hedge funds like Magnetar Capital, and Life insurance companies like the AIG and investments trusts contributed to the global financial crises of 2007-2008. This financial crisis also referred to as the great recession was triggered by liquidity problems in the United States economy. Many large financial institutions collapsed according to Geczy (2010). The government had to bail out

The papers start off with giving an explanation of the Economic theory. It goes on to make the point that the theory really has not come yet to agree on the insinuations of augmented rivalry for banking reliability, and, more precisely, bank capital ratios. The author goes on to bring in an example, which makes the suggestion that increased competition reduces banks' soundness. The document explores the chief mechanisms that are talked about in the literature. The literature makes the point of mentioning that the bank managers have an inducement to take on extreme jeopardies to profit stockholders at the expenditure of investors. The document also brings in another perspective that had a contrast from what Camino and Matutes (2002) mentioned. Both of these made the point prove that

In the past two decades, economic analysts and policy makers have recognized that the financial system can significantly contribute to economic growth. Observing the changes that have taken place, a result has arisen that a liberalized financial sector operating in a competitive, open environment with market-based supervision based on international norms, is the best contribution to economic development. The new market-based paradigm for the design of financial systems contrasts with earlier thinking about the appropriate role for official intervention in the financial system. In the past, financial institutions, especially banks, were considered "special" entities in which it was appropriate for governments to intervene regularly in detecting a wide range of economic and social objectives . While, in earlier times, the financial sector differentiated strongly among countries and influenced by national rules .

Economists, bankers, congressmen, and part of the industry have been thinking that it is the time to make some adjustments. Despite that fact, some of those people believe that big banks, without any break up or reform, are more stable and safer than smaller and less complex banks. Moreover, those defenders have stated that the regulatory reforms

Banks are constantly facing the risk of currency and interest rate fluctuations within the financial markets. Prevention of Fraud and mismanagement is the reasoning also seen as justification for the implementation of the regulation of the financial sector.

Bank regulation plays a vital part in the economy today and can be attributed for a lot of its success. It has even been taken to the extent of individuals claiming bank regulation to be the backbone of our modern day economy. To fully understand this topic it is first important to define what bank regulations are. Bank regulations are a kind of government regulation that makes banks liable to certain requirements, restrictions and guidelines. Bank regulation includes determining specific regulations and guidelines to oversee all of the activities and operations of banking organizations. Banking regulations can vary widely between nations and can even be changed due to certain jurisdictions. However, even though they can differ, most

The academic writing is yet to arrive at an agreement over these conflicting narratives. However, recent theory and proof are pointing towards a positive outcome of competition on bank stability (Schaeck & Cih?k, 2013, p.111). On the contrary, conventional literature stipulates that growing competition erodes character values that eventually yield a negative trade-off between competition, efficiency, and stability in the banking sector.

When looking at something as large as the economy, we have to realize that there is always the potential for something to go wrong. This could be something that naturally takes place due to lows and highs in business cycles, or something that is totally unnatural, like human manipulation of the market. Due to things like this we often have to set some type of regulations to keep certain factors of the economy in check. During this paper I will discuss some of the regulation packages that have been introduced in an effort to keep the economy in check. A few of these include the Glass-Steagall Act, the Frank-Dodd Act, and the Volker Rule. Furthermore, we will attempt to answer questions like, how does the Frank-Dodd address the “Too Big to Fail” problem with banks? Do you think the Frank-Dodd Act accomplishes its goal? If not, what might you suggest to correct the issue?

The foundation of a successful bank marketing scheme lies with a strong understanding of the environment in which the institution is located. The most important environmental variables are those operating outside the bank, known as the external environment and those within the organization, known as the internal environment. (McMahon, 1986). The external environment includes components such as legislation, prime rate, competition in the market, local business practices, and technology. Most importantly, the external environment must look and examine the effect of the national and regional economy as it pertains to the marketing situation. First, bank managers need to examine certain forms of legislation, such as the government 's present deregulation process. (Hodges and Tillman, 1968). Due to stiff pressure from customers and the business community alike, bank regulators, federal and state, are releasing their tight grip over the previously controlled industry. The government 's lasses-faire approach to the situation has enabled states to

In a growing number of countries, the expansion of the financial services sector has been accompanied by a significant blurring of lines between different institutional types with, for instance, retail banks offering insurance products (bancassuarance), insurance companies offering bank accounts and supermarkets launching their own credit cards. As a consequence, individual organizations can no longer claim a distinctive market position based on the products they offer.