To operate banks need to be able to reasonably price and manage risk and generate adequate shareholder returns. A reform of banking regulation was required however we have reached point of over regulation where compression of profit margins and ever increasing regulatory cost may mean that it becomes impossible to find investors in bank capital.
Examining the major resuscitation efforts by the G-20, IMF, WTO and other institutions, Drezner asserts that, aside from averting a full-fledged depression, the international response appears to have sufficiently prevented the crisis from igniting internal repression, border disputes, and arms races. Yet his conclusions sidestep fundamental arrangements in today’s international system and in many ways misgauge existing conflicts and their underlying grievances. During the initial stages of the 2008 crisis, multiple analysts asserted that the financial crisis would lead states to increase their use of force as a tool for staying in power. They voiced genuine concern that the global economic downturn would lead to an increase in conflict—whether through greater military exercises, diversionary wars, or violent trade disputes. Populist revolts in North Africa and the Middle East along with an emerging border dispute in East Asia fueled impressions of surging global public disorder on behalf of the financial crisis.
For example, several countries Europe transformed the financial crisis into sovereign debt crisis. The crisis is borne as a result of policymakers thinking that stability can be achieved through policies besides the standard toolkit used by developing nations. Such common approaches include higher inflation, debt restructuring, significant financial repression and capital controls. The world super powers think that doing so is like foregoing their credibility thus worsening the condition instead of seeking the required immediate solutions. As a result the state of living deteriorates and the citizens... ... middle of paper ... ...financial crisis is disheartening.
The author then argued that long term international capital flows, migration, and differences in tariff barriers, also known as the “Three Pillars of the Classical Gold Standard”, contributes to the reason why developing countries were able to maintain their current account deficits until they could face the competition with the modernized countries. However, in accordance to the article “Interest rate interactions in the classical gold standard, 1880-1914: Was there any monetary independence?” by Bordo and Macdonald, the Classical Gold Standard is not a sustainable monetary system because it required some countries to be independent when monetary policy operates. This is especially conflicting in the modern day structure in which central banks need to use a targeting zone to achieve their purpose. In the modern era, quantitative easing (QE) is an unconventional type of monetary policy used by the Federal Reserve to respond to the deep recession. According to the article “Quantitative easing and Proposals for Reform of Monetary Policy Operations: by authors Scott and L.Randall, the impact of conducting QE on interest rates is lower long term yields when compared to the short term ones.
This is generally in light of the fact that any change in the budgetary plans will incite the decay in the money and to keep up the swapping scale the Government needs to offer out the remote stores of the Bank. In this way the financial techniques are deficient under the settled exchange rates. Sachdeva, C.B(1993) Monetary theory, C. B Sachdeva, 3rd Anderson, A (1994) “advantages and disadvantages of Free international trade”, Journal of Business Economics, 137-80 Palke, V(2005) “Keynesian theory”, Business Journal, vol1, 345-67 TOI (2012) Monetarism and its policies, Times of India, November 11, 2012, pg9 Moira, Ben. C(1920) Monetarism and its policies, Advanced Macroeconomics, 125-78 Tom, V(1981) Nash Equilibrium and its working, Journal of Business Macroeconomics, 9, 385- edition, 188-99
The introduction of fiscally-oriented capital controls (as Chile has implemented) is one possibility. The less attractive Malaysian model springs to mind. It is less attractive because it penalizes both the short term and the long term financial players. But it is clear that an important and integral part of the new International Financial Architecture MUST be the control of speculative money in pursuit of ever higher yields. There is nothing inherently wrong with high yields – but the capital markets provide yields connected to economic depression and to price collapses through the mechanism of short selling and through the usage of certain derivatives.
One of the most notable results of the 2008 financial crisis is the too big to fail (TBTF) problem. Too big to fail is the term that describes the situation where some financial institutions are so large and ingrained that their failures will cause significant impacts on the economy. As a result, the financial institutions, by being too big to fail, gains many implicit benefits from the government who is trying to protect them from failing. Given the problems of too big to fail, the government has been trying to solve the problems in the past few decades by promoting new policies to minimize the interconnectedness of large banks. However, insufficiency in supervision also plays an important role on the too big to fail issue.
It guards their domestic industry from the negative effects of the financial crisis by accepting new trade restrictions intended at imports and other policies designed to limit the flow of wealth outside their country (Faiola, 2009). Thus to conclude, the impact of globalization may have been extremely economical, but it has brought the dependency theory into the forefront, as poor is becoming poorer and the rich are getting richer. The divide between the north and south states is defining the new international developments and relation. Consequences of economic globalization are immense, whether these consequences prove the dependency theory “right”, it is yet to be discovered.
The purpose of this essay is to elucidate regulatory failure in 3 major types: first, misguided intervention in the U.S. second, failure of financial risk management, next, the lack of transparency regulation in private and public sector, and a case study from Lehman Brothers. Firstly, an erroneous policy from the U.S government caused a long term effect to a financial system globally. Generally, the housing and financial market had been strongly promoted. The competition among financial institutions was increased as same as Gross domestic Product (GDP) in each country. To be more specific, reducing of interest rate in short time and sub-prime borrowers had been facilitated to own a home easily and that caused a sub-prime crisis.
However, since the fight against money laundering is very resource-intensive (Aluko & Bagheri, 2012), long-term approaches are more recommended. Due to money laundering practices are becoming increasingly transnational, it has almost become too difficult for individual authorities to tackle money laundering alone (Aluko & Bagheri, 2012). Therefore, apart from reformulating the banking systems and continuing to improve the taxation system to combat money laundering effectively, a strong global cooperation with anti-money laundering laws should also be promoted (Usman Kemal, 2014). In 2012 Aluko and Bagheri claimed "Effective global compliance of anti-money laws measures reduces the impact of money laundering in the global financial system and also increases transparency and effective international