Jp Morgan and Dodd-Frank Act

Managing a Bank crisis is one of the most difficult tasks of a regulator. Banks and financial institutions had to take counter measures in order to survive and remain competitive. Efficient regulatory framework identifies the benefits of a sustainable financial system. It helps the organizations to work efficiently, objectively and the country will have transparent markets. Regulatory system is open minded to the needs of investors when implementing directions to curtail regulations for certain types investment related products and services. It also maintains accountability with respect to market participants and policy makers.

Apparently, the financial crisis that began in August of 2007 were the product of several minor issues such as poor risk controls, too much leverage, and an almost willful blindness to the bubble-like conditions in the housing market but the actual root cause was the collapse of the ethical behavior especially on the part of the top executives of the most financial institutions and the loss of any sense of fiduciary responsibility to the ultimate client.

This paper was written to examine the causes of the financial crisis and Great Recession which can be materially tied back to decisions made in the 1970s and set the state for the crisis to occur. The paper invites the consideration of the key drivers that led to the subprime crisis that occurred long before 2007 and the result of a series of Acts that were ratified and the subsequent reforms that came about from these Acts. The Act that fanned the fire was the Community Reinvestment Act, which addressed a civil rights issue and a credit lending tendency to shun people of certain socioeconomic classes. Under the Act, various reforms made it fundamentally easier for people to purchase large capital assets no matter what their background

I concluded six months ago (Truman 2008) that there was no shared diagnosis of the origins of this crisis. Nothing that I have heard or read since then has convinced me otherwise. If anything, disagreements have become more intense, in the meantime. This fact hampers our ability to learn the proper lessons from this crisis. This fact also means that it is useful for me to declare my own biases in advance. Conventionally, causes of this financial crisis include some or all of the four following elements: macroeconomic policies, financial-sector supervision and regulation, financial engineering, and the global activities of large private financial institutions. The context for each element is the United States or other similarly advanced countries.

The origins of the financial crisis can be attributed to multiple inter-related factors. The biggest single contributor of the crisis, however, was the practice of

One cannot say that U.S banking system is designed to fail; however, it is the relentless deregulation in the financial sector and competing for financial sector activities in the globalized financial market as means towards higher growth resulted in its instability over the centuries. The U.S. central bank and federal government did not see the impending crisis on the horizon due to the deregulation of financial market. The central bank believed that there could be evolving economic imbalances or risk in the financial markets, but that these were best managed by market forces themselves. But they failed to realize that some time market fails on its own. Deregulation of the financial sector was initiated and reinforced through legislative changes, followed by regulatory policies consistent with the philosophy of deregulation. As the US was losing comparative advantage in agriculture, manufacturing, and services to developing and emerging market economies, while they continued to have advantage in the financial sector. Hence, the United States perhaps felt that national interest lies in their dominating financial sector activity, and hence development of the financial sector was coterminous with their national interest. This approach could have led to a race to the bottom in financial sector regulation in their jurisdiction. The US banking system and financial sector was source of so much instability was due to relentless deregulation of the financial market.

In 2008, the whole world encountered the biggest crisis on the economy generally in the finance sector. One of the essential driving factors of this was the deregulation in the finance industry. It permitted financial organizations to be engaged with offsetting the risk in fund exchange with the derivative. As a result, the financial institutions (like banks) claimed for more mortgages that would support derivatives trade that was profitable (Scott, 2010).

New financial regulations have been created and existing regulations have been revised in the aftermath of the financial crisis. The role of financial regulatory policy in the financial crisis is sometimes presented in a way that will help the economy improve. Deregulation was an approach that the economy was implementing towards to. According to Kroszner and Strahan in the reading about What Drives Deregulation?, in order to achieve a positive theory of regulatory change, it is crucial for an economy to characterize the regulatory process as one in which “well-organized groups use the power of the state to capture rents at the expense of more dispersed groups.” (Kroszner, Strahan Pp 1438) This suggested that the elimination of restrictions on bank branching will benefit the theories of regulatory change.

There are several factors that caused the financial crisis of 2008. The first factor consists of the banking fractional reserve system. With this system, banks only have a fraction of the money they loan out. This makes the bank system extremely vulnerable, because if enough people are trying to take their money out of the bank or if enough people can not pay their loans, the banks can become bankrupt. To make matters worse, the banks were so large that they were even larger than the Gross Domestic Product of the United States. The Gross Domestic Product is the sum of consumption,

Deregulation is a process that removing or reducing the regulations and allowing banks to invest (MBA lib, 2015). It allows banks to collaborate, and there’s no regulations of derivatives. The Financial crisis in 2007-2008 brought the massive hurt to everyone in the world. The worldwide financial problem affected thirty million people loosing their jobs and cause many countries getting close to go bankrupt (Peah, 2014). This is the global issue that everyone should be consider of. The purpose of this essay is to determine if the deregulation was the underlying cause of the 2007/08 financial crisis. The essay argues the deregulation was the underlying cause of the 2007/08 financial crisis in the US, because of it causes financial innovations with no regulations, subprime mortgages increasing and lead quite a few competitions among banks. I will discuss these three parts in the following essay. Firstly, I would focus on how deregulation causes more and more financial innovations be made and how they resulted the financial crisis. Then I will argue that deregulation leads to the numbers of subprime mortgages increased in the market. Due to deregulation the subprime mortgages markets started to lose control, the market failed and caused the financial crisis in 2007/08. Finally, I will state deregulation causes banks began multiple competitions among them and raised the amount of subprime mortgages thus the financial crisis occurred.

The financial system has continuously evolved since the first accord was written. The financial crisis has

During the financial crisis, the banking system was on the verge of collapsing. This highlighted the fact that banking regulations were not strict enough, thus coming up with new banking regulations which were strong and up to date in order to prevent another downfall became a major issue for regulators. The issues mostly revolve around identifying loopholes which caused the system to collapse. For example, under the mark-to-market based accounting system, banks might be short term focused, hence, a strong incentive to underestimate risks. Thus, regulators face the issue of ensuring that accounting frameworks are amended in such a way that they make provision and cater for the possibility of future losses arising.

Connor, Flavin and O’Kelly (2010), Stated that Deregulation of Financial Markets & Large Capital flow (Bonanza) were two of the four main reasons of both US & Irish Bank Crisis.(Ref 1. Connor, Flavin and O’Kelly (2010), the other two being Irrational exuberance & Moral Hazard.

Deregulation has been ongoing in financial markets for more than 30 year, this has allowed financial institutions to self-regulate and ultimately police themselves. Former Federal Reserve chairman Alan Greenspan supported by successive administrations and congress were actively pushed by powerful financial industry at every turn to strip away safeguards that would have avoided vulnerabilities in the contemporary global financial systems. U.S. government allowed financial firms to pick their preferred regulators. “From 1999 to 2008, the US financial sector expended $2.7 billion in reported federal lobbying expenses; individuals and political action committees in the sector made more than $1 billion in campaign contributions. What is most troubling is the extent to which the nation was deprived of the necessary strength and independence of the oversight necessary to safeguard financial stability”. (Commission, 2011)

It is clear that the crisis had multiple causes such as the financiers themselves especially those who claimed to have found a way to expel risk where in fact they had only lost track of it. Regulators and bankers are also to bear blame because they tolerated this recklessness. The macroeconomic backdrop was very important as years of low inflation and stable growth nurtured risk-taking. Some research suggests that European banks should take blame as they borrowed greedily in American money markets pre-crisis and used the funds to buy dodgy securities. All these factors together played a major role in the unravelling of the recent financial crisis