Financial Regulation And The Financial System Essay

Financial Regulation And The Financial System Essay

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Financial regulation is a form of regulation or supervision of the financial services industry, aiming to maintain the integrity of the financial system. Deregulation was experienced mainly in the worlds of banking and building societies, also affected the structure of banking sectors. To some degree, self-regulation caused a lot of adverse effects on consumers, it aroused a hot topic for people on consumer protection. Split capital investment trusts are investment trusts that companies raise funds to invest in other companies. They can benefit from both dividend income and capital growth. However, when share prices suddenly decrease, many trusts did not have enough money to pay, some trusts borrowed heavily to buy more shares. A lot of people have lost their money, therefore is very hard to determine the extent of consumer responsibility for their loss. It caused moral hazard – the existence of a powerful regulator and an ombudsman leads small investors to feel their investment are secure. They do not, as a result, always read the small print attached to financial products, even though it could be argued that the high rates of return offered should have alerted investors to the degree of risk they faced. (Howells & Bain, 2007)
In addition to these, the negative side of regulation seriously influenced the producers.
Regulation creates compliance cost (the costs of adhering to the regulations) for producers (Howells and Bain, 2007). Due to increase the cost of capital to borrowers by increasing the cost of finance, increase unit costs of production in the financial sector, it is obviously raise the input but produce less than estimated. In other words, increase the unit of producing financial services, which increases the cost of ...

... middle of paper ...

...n are also commonly advanced, with different emphases in different countries. In addition, in the US, there are strong historical roots of financial institution that people have no faith in, many kinds of regulation have been proved as necessary to protect consumers from excessive price and discrimination; to prevent an undue concentration of economic and even political power, and to encourage the allocation of credit to favoured industries, activities, and regions. Its therefore seems that none of the criticisms point out sufficient reason to deny all self-regulation, it is better to take into account all of the factors in decision making over the amount and form of regulation.
Consumers play a crucial role in the whole financial system, therefore consumer protection must be regarded as a top priority to be carried out and well handle it with producer by regulation.

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