New Regulatory Framework of Financial Research Paper

Download this Research Paper in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Research Paper:

" (Crawford, 2011)

These comments are showing how Wellstone understood the risk that this would pose to the financial system. In eight years after making this speech, the federal government would be directly bailing out firms that were too big to fail. This is indicating how the repeal of the Glass Steagall Act allowed financial institutions to engage in excessive amounts of risk taking. It is at this point that they took on large amounts of debt and had no accountability. (Crawford, 2011)

The information from this source is useful in showing how the repeal of certain laws helped to create situations which allowed for an atmosphere of deregulation. This set the stage for excessive amounts of risk taking with the liquid assets of the firm. When this happened, many institutions began to engage in activities that were believed to be safe. However, they were considered to be speculative and increased the company's risk position exponentially. This shows what the regulatory environment was like prior to the financial crisis and those factors allowed it to occur. (Crawford, 2011)

The lack of regulation has led to a concentrated push in having the federal government increasing the underlying guidelines inside the sector. This occurred with a focus on the size of these firms and how they were able to become so vulnerable. The results were that the organizations did not have any kind of responsible lending activities. Instead, they were basically approving loans without analyzing the borrower's ability to pay back the money or their income / credit history. Once interest rates increased, is when many of them could simply walk away from having very little invested in the house. (Crawford, 2011)

Solutions and New Regulatory Approach in the Global Financial Aftermath

In response to these challenges, the federal government has enacted the Dodd Frank Wall Street Reform and Consumer Protection Act. This law is reversing the deregulation from the late 1980s and 1990s. Under the new guidelines, a Consumer Protection Agency will have the authority to monitor the transactions of financial firms. Those organizations that are becoming a threat to the economy will be reduced in size from this entity. (Steiner, 2012)

Evidence of this can be seen with observations from Steiner (2012) who said, "Recent bad corporate behavior compelled legislators to step in and tweak corporate governance by giving shareholders proxy access and allowing them to vote on executive pay and golden parachutes. Small investors may also get more protection when it comes to their investment advisers. Retail investors are rarely aware that it's perfectly legal for brokers to overcharge customers -- as long as suitability standards are met. With the new legislation, investors will get the assurance of knowing that brokers have to put their customers' best interests first. Finally, people with money in the bank can rest easier knowing that FDIC insurance will permanently cover more of their funds." (Steiner, 2012)

These insights are showing how Dodd Frank is increasing the overall protections that are available. For all classes of investors, this is resulting in more honest practices when it comes to commissions and the kinds of products that are recommended. This will provide the industry with a set of morals and guidelines that will automatically reduce risks for these firms. (Holzer, 2012) (Steiner, 2012)

The results of the Dodd Frank Act are that the new Consumer Protection Agency is directly going after areas that are creating potential problems for the financial system. For example, in the last year the SEC has wanted to impose new rules on money market funds. This is because they determined that they were engaging in risky practices by investing in areas that are considered to be safe. Yet, they offer a higher return and greater amounts of income. Historically, these assets have always traded at $1.00. This is because it was believed that the practices of money managers were focused on meeting FDIC guidelines. (Holzer, 2012) (Steiner, 2012)

However, once the financial crisis began is when they were exposed for making purchases of subprime mortgages and other areas that were thought to be safe. To address these issues, the SEC wants to have prices trade similar to mutual funds. This will force the markets to accurately evaluate these areas and they are increasing disclosure requirements. Recently, one of the commissioners on the SEC was blocking any attempts to impose these guidelines. Then, when the Consumer Protection Agency stepped in, is the point that this person reversed their position (allowing for the implementation of these new guidelines) (Holzer, 2012)

Commenting about what is happening is Holzer (2012) who said, "Money funds typically invest in short-term debt instruments and, similar to investors, they pay back the amount that they put in (exactly $1 per share on top of any interest). In 2008, the collapse of Lehman Brothers led to a fund that held Lehman debt to 'break the buck' or fall below $1.00 peg (a rare event). The government intervened to prevent panic from spreading to other parts of the financial system, and the aim of any regulatory overhaul is to prevent a similar kind of situation." This is illustrating how the markets can provide investors with more accurate information about the risks in these assets. The ability to float against the $1.00 mark will help them to determine this and conduct more precise analysis. These provisions might not have been implemented, if the Consumer Protection Agency wasn't there to play an important role. (Holzer, 2012)

Moreover, the introduction of these provisions will require money market funds to register with the SEC under the Investment Company Act of 1940. This mandates that all mutual funds and other investment related companies must provide disclosures about their investing activities and risks. The fact that money market funds will be forced to follow these standards makes them list any assets that are more risky. In the future, this will assist investors by having better information surrounding specific areas. (Holzer, 2012)

The information from these sources is showing how the regulatory environment has changed after the financial crisis. What is occurring is the federal government has begun to take a more active role in regulating the size of financial institutions and the activities they are involved in. The results are that the entire industry will face increased amounts of scrutiny surrounding their activities. (Holzer, 2012)

For a number of years, this will help to promote the long-term stability of the sector. However, everything will change once financial institutions are able to remove the various protections that are in place. If history is any guide, there will always be attempts to remove these restrictions as the economy changes and adjusts. The key is creating an environment that promotes healthy competition and has effective regulations that will limit abuses. This is the challenge that the global financial markets will face for many decades to come. (Crawford, 2011)

Furthermore, Dodd Frank is directly targeting hedge funds and the activities of medium sized investment advisors. Under the new law, both are required to register with SEC and disclose their investing activities. For hedge funds, this is designed to prevent speculation and ensure that there is increased transparency. This prevents these firms from taking excessive amounts of risk. Prior to the implementation of these laws, any kind of regulation was considered to be voluntary and only 10% of hedge funds participated. ("More than 1,500 Private Fund Advisors," 2012)

While medium sized investment advisors were regulated by the state. However, the concerns about Ponzi schemes and the potential for others developing, resulted in these firms registering with the SEC vs. The state. This is supposed to improve the reporting and monitoring of how client assets are stored / protected. ("More than 1,500 Private Fund Advisors," 2012)

Commenting on these changes is SEC Chairperson Mary Shapiro who said, "Prior to the Dodd-Frank Act, regulators only saw a slice of the pie but didn't know how big the pie even was. The law enables regulators to better protect investors by providing a more comprehensive view of who's out there and what they're doing." This is illustrating how the law will have long-term positive effects on consumers. As firms will be forced to provide them with more information and there will be greater amounts of scrutiny over their activities. ("More than 1,500 Private Fund Advisors," 2012)

The information from this source is illustrating how there will be an aggressive focus from regulators. This is because they want to prevent any kinds of situations from becoming out of control early. The new found authority that they are receiving from the laws such as Dodd Frank will set the tone in the way rules are enforced. In the future, this means that these guidelines will create a set of acceptable practices for everyone to follow. This is the point that the financial system will have greater amounts of stability. ("More than 1,500 Private Fund Advisors," 2012)

The Model or Core Analysis

Like…[continue]

Some Sources Used in Document:

"w17909.pdf?new_window=1" 

Cite This Research Paper:

"New Regulatory Framework Of Financial" (2012, December 11) Retrieved December 8, 2016, from http://www.paperdue.com/essay/new-regulatory-framework-of-financial-77020

"New Regulatory Framework Of Financial" 11 December 2012. Web.8 December. 2016. <http://www.paperdue.com/essay/new-regulatory-framework-of-financial-77020>

"New Regulatory Framework Of Financial", 11 December 2012, Accessed.8 December. 2016, http://www.paperdue.com/essay/new-regulatory-framework-of-financial-77020

Other Documents Pertaining To This Topic

  • Designing a New Regulatory Framework

    E., the company) that has technical control over telecommunications networks and thus technical ability to access communications, versus a party that is duly authorized to actually access those communications via a warrant (Mares, 2002). Although, as is consistent with the British model of legal evolution that relies heavily on interpretation of judicial action and precedent rather than overt legislative action, there have been no new statues issued in the intervening

  • Financial Derivatives This Study Emphasized the Importance

    Financial Derivatives This study emphasized the importance roles of financial derivatives, which has been known for the last decade and its effects on the Global financial crisis. It further analyzes the impact of financial derivatives and how it can be controlled to prevent corporations from incurring a lot of risks. It also explains the existence of financial derivatives since 1970, to the recent Global Financial Crisis which occurred in the 2006. Risk

  • Framework for Awarding Audit Contracts by US Government Departments...

    awarding audit contracts by U.S. government departments and agencies Audit Management Red Rationale for and Objectives of the project main and secondary Desktop or literature search Rationale for Search Methodology LITERATURE/DESKTOP RESEARCH Authoritative sources Desktop Findings Justification for audits Evolving role of auditors Types of audit contracts Understanding the Audit Process Best practices and benchmarking Terminology Case Studies Audit management is a fundamental element in government accountability, control and performance management. Certainly there is justification within the Federal government to conduct audits of contracts for the

  • Regulatory Review After the Credit

    292). The Depression of 1893 Following hard on the heels of the depression that had taken place just two decades previously, the precise causes for this economic downturn remain unclear. In this regard, Steeples and Whitten (1998) advise, "There is no adequate account of the causes of the depression of 1893 -- 1897 or, by implication, of the crisis itself" (p. 6). These authors, though, cite fundamental shifts in demographics in

  • New Public Management Reforms the

    Indeed, the reference to "institutional sclerosis" concerns the fact that virtually every conceivable interest in contemporary society is protected by a variety of laws that provide for extensive advising, participation and appeal procedures, a process that further exacerbates the inability of public administrators to remain responsive to their constituents (Klijn & Koppenjan 241). These authors emphasize that, "This results, among other things, in the Not In My Backyard (NIMBY)

  • Offshore Financial Centres and Their

    Because the home country is not required to reimburse foreign depositors for losses, there is no corresponding financial penalty for lax supervision; there is, though, a benefit to the country with lenient regulatory policies because of increased revenues generated and the employment opportunities these services provide (Edwards 1999). Furthermore, banks seeking to conduct multinational business are attracted to countries where incorporation laws and the regulatory framework offer less regulatory oversight

  • UK Financial Regulation Reflecting Back

    6% holding in Lloyds following huge losses at both during the credit crisis" (Gupta. S. March 16, 2011) point to the need for stronger regulation of the financial sector. The UK banking system which is one of the most successful and innovative in the world must continue to have autonomy in its operations. Over regulation will only stifle an industry which is a key to the return of a strong


Read Full Research Paper
Copyright 2016 . All Rights Reserved