The Deregulation Of Domestic Financial Sector

2) Interest rate parity (how exchange rate is determined by the flows of capital) and

Morrison suggests that government should try to make regulations that can make TBTF policy effective rather than, try to end the policy, which is impossible. Morrison discusses the role of the policy in designing suitable capital regulations, in the restriction of bank scope and in institutional design. The author argues that financial institutions receive help from taxpayers and government because regulatory authorities believe that its failure would have severe effects on the country’s economy.

There is a frequent criticism on financial globalization, concerning about economic volatility eventual increases and interruptions in autonomy of monetary policies. Prior importance and crucial nature of the situation is linked with the international capital movement and intermediation in funding. One major issue is that such globalization techniques may get the organizations and countries exposed towards shocks for economy at the time of limiting the tools relevant to that by policy authorities and central banks for home and abroad generated shocks. In this paper I have studied and aimed at striving for globalization and shocks identification in case of banking sector moving of the global and expansion strategies whilst they can also provide the minimal rate solutions for issues and problems.

On the other side, establishing capital market liberalization (pp. 44-46) was a mistake. Lastly, the IMF’s answers to the majority of economic crises, such as the one that laid waste to East Asia (pp. 89) had negative outcomes, deteriorating the conditions in these territories. In particular, raising the interest rates and enforcing financial austerity were burdens for the continent’s economic growth. In order to prove his points, the economist explains that China, India and Malaysia, the two first countries being spared by the studied crisis and the latter having known a quick recovery by ignoring the IMF’s advice.

The Capital market in any country is one of the major pillars of long-term economic growth and development. The market serves a broad range of clientele, including different levels of government, corporate bodies and individuals within and outside the country. Capital formation entails accumulated savings out of the current incomes of either organization or individual. It is investment in fixed assets which in part is financed with monies raised through the capital market (Al-Faki, 2006). The Capital market has been one of the major means through which foreign funds are injected into most economies and the tendency towards a global economy is more visible there than anywhere else. It is therefore, quite valid to state that the growth of the capital market has become one of the barometers for measuring the overall economic growth of a nation (Emenuga, 1998).

Financial and international capital account liberalization and the removal of barriers for investment opportunities have transpired globally since the early 1970s. When countries receive large amounts of foreign capital, an instant effect is an overheating economy due to an expansion of aggregate demand. As this inflow arrived into the United States, investment banks such as Goldman Sachs saw profits rocket. “The size of the U.S. financial sector more than doubled, from 4 percent in the mid 1970s to almost 8 percent of GDP by 2007” (Reinhart and Rogoff 2011). The frontrunners of the financial sector (who miscalculated the hidden risks involved in their own activity) were convinced that financial modernism was an important factor that allowed the U.S. to borrow such large amounts of money from abroad.

Financial Instability The soaring volume of international finance and increased interdependence in recent decades has increased concerns about volatility and threats of a financial crisis. This has led many to investigate and analyze the origins, transmission, effects and policies aimed to impede financial instability. This paper argues that financial liberalization and speculation are the most reflective explanations for instability in financial markets and that financial instability is likely to be transmitted globally with far reaching implications on real sector performance. I conclude the paper with the argument that a global transaction tax would be the most effective policy to curb financial instability and that other proposed

Another reason behind the 1997 Asian financial crisis was the large current account deficits. Asian leaders agreed that large current account deficits could not be good, but they made the logical economic argument that if a current account deficit mostly reflects higher investment, it would eventually increase an economy’s competitiveness and therefore its ability to repay the debt, and would certainly be more sustainable than a deficit driven by

After the collapse of Lehman Brothers, the G-20 became the most important forum for economic cooperation . Its positive impact in the realm of financial regulation can be determined by two main results. Firstly, the most important emerging nations were included in the premier league, thus rebalancing most part of worldwide financial authorities, increasing the number of players who now participate in financial regulation. Secondly, the G-20 started several initiatives regarding worldwide financial regulation. It set important deadlines that in some cases were not met. Even though the G-20 is a political organization, the management of the global financial regulatory agenda has been mostly performed by the IMF and FSB. The IMF performed an important task via its Financial Sector Assessment Program (FSAP). The FSAP became in 2010 an important regular feature within 25 nations, hence providing a comprehensive assessment of a nations’ financial stability. The FSB has a multidimensional role and is still evolving. It established, usually under the request of the G-20 authorities, several working groups, as well as it manages tasks in numerous fronts. Nonetheless, the actual effort of rulemaking and standard-setting rests at the specialized global authorities’ realm. Several of its reports are directed to global bodies, which have FSB memberships, such as the IOSCO and the Basel Committee. Therefore, the contribution given by the

Garran (1998) argues that most countries affected failed to set up acceptable regulations and supervision that would have allowed capital markets to develop without risky imbalances. He states that countries “over-borrowed, over-invested and over-reached themselves”.

Moreover, the collapsed Bretton Woods system was accompanied by the reemergence of international capital markets and an increase in the activity of international commercial banks. With decreased demand for loan in high-income countries, interest rate decreased and banks sought new borrowers. Meanwhile,in less developing countries growth rates was fairly satisfactory. According to FDIC ( 1997,pp 192), before tho oil price shocks which will explained later, for more than a decade, the real domestic product growth rate of the developing countries averaged 6 percent and for remainder year slowed to 4-5 percent. Such growth generated investment from international banks in these markets.

Facing the problems posed by an unstable global financing market, the BCBS set the following intertwined goals: to develop a comprehensive set of standards on capital flows, to implement those standards in the absence of legitimate international treaties or law, and for that to happen, to maximize their own enforcement power through guidance and supervision. It is in the interest of every nation to maintain its own competitiveness while refraining from harming the stability of the global financial system. However, these two goals are not always compatible with one another.

With its roots in banking, the sub-prime mortgage crisis that commenced in the United States in 2007 soon resonated in other sectors of its financial system, and the economy, at large. It spread quickly to the developed economies in Europe, including the United Kingdom, and Asia -with Japan becoming well affected. The emerging economies were not isolated. A transmission channel of the global financial crisis, which has been referred to as the “Globalised Synchronized Slowdown” is the stock market SERE-EJEMBI, (2008). Around the world stock market indicators started falling. The capital market, vis-à-vis the stock market, is a channel through which national economies receive foreign capital flows that make their tendency

The world post World War II is in an economically more advanced state. The inception of the International Monetary Fund and the World Bank in 1945 had been extremely necessary in bringing temporary relief to the world. When the world was tottering at the heels of economic and social disorientation, courtesy closed economies and inward looking policies during the war, the above two institutions vowed to provide funds in the form of loans and aids to developed nations mainly to sustain tentative anomalies in the economy. This was considered to be an unprecedented move towards a long awaited path of economic globalisation which was yet to show its effects.

La desregulación financiera y las facilidades dadas por los estados para atraer capitales debilitaron las regulaciones más básicas, además los puso en competencia a quien ofreciera más facilidades y menos impuestos al capital. El déficit fiscal y el endeudamiento público se convirtieron en dos caras de la misma moneda. Un claro ejemplo de esto, es lo ocurrido con Goldman Sachs, señalado a continuación.