The Deregulation and Growth of Financial Markets

Decent Essays

Q1. How did deregulation of financial markets and the large flow of capital between countries contributed to vulnerability of the contemporary global financial system.
Deregulation is defined as the removal of rules and restrictions, when this occurred within the financial markets it allows financial institutes more freedom, it encouraged new ways of lending and made funds more accessible to lenders.
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)
Large flows of Capital are the movement of money for the purpose of investment, trade or business production. Large flows of capital between countries have being

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