Regulations of Financial Markets and Global Financial Crisis Essay

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Regulation of Financial Markets

BA (Hons) Business Management
Word Count: 2750
Q: Explain the main reasons why financial markets are regulated? To what extent do you think that recent problems in the financial markets are the result of too little regulation?

Since the inception of this world, people are following rules in one way or the other. Every aspect of our lives follows a pattern. The best patterns and practices are developed in to rules. If there are no rules, there will be chaos everywhere and catastrophe ready to strike at any moment. To keep our lives peaceful and in order, we follow rules. Some of them are set by us and some by law experts and
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Financial markets and institutions help to shape the corporate and financial structure of the country. Therefore to keep the economy of the country stable, regulations are implemented.
Regulations ensure fair disclosure of information to all the entities involved in a financial transaction (Pilbeam, 1998). Without regulations, one entity can have more information and it can take illicit advantage from that information. To ensure fair dealing and to prevent other entities from exposure to risk, regulations are imposed which ensure that all necessary information is disclosed prior to the transaction taking place.
Market Failures and Crisis:
Regulations of financial institutions have always followed financial crisis and failures. Market failures and crisis are the primary triggers of that lead to the development of regulations of financial markets and institutions (Howells and Bain, 2004).
Although regulations cannot completely prevent the markets from failure, they can reduce the risk (Pilbeam, 1998).
Causes of Market Failures and Crisis:
The failure and crisis in the financial markets and institutions can be caused by many factors. One can be inefficient allocation of resources (Pilbeam, 1998). Every operation of financial institutions includes monetary transactions. Whenever there is a shortage of money; crisis start. Therefore for all the operations of financial markets and institutions sufficient
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