The outburst of the global financial crisis caused by the subprime crisis in America makes it necessary to adjust the financial regulation systems. The main financial crises in the history of the mankind were all mainly caused by the defects of the financial regulation in the world. Thus it can be seen that it is very necessary and important to explore the effective means to improve the effectiveness of the international financial regulation. The aim of this report is to explore the future of the financial regulation on the basis of analyzing the financial crisis.
Table of contents
1. Financial crisis4
1.1 Ingredients of the financial crisis4
1.2 The causes of the financial crisis5
1.3 The influence of the financial crisis on the global economy7 2. Financial regulation10
2.1 The financial regulation and its economic basis10
2.2 The role of the financial reguation11
2.3 The issues in the financial regulation14
3. The future of the financial regulation16
3.1 Strengthen the financial legislation and the financial enforcement16 3.2 Develop the financial innovation and enhance risk consciousness17 3.3 Realize the international cooperation of the financial regulation17 3.4 Strengthen the information disclosure18
The financial industry is the core of the modern economic system. With the development of the economic globalization, the costs and transaction expenses of the financial globalization were reduced and hence it prompted the development of the financial globalization. The financial globalization can bring a lot of economic profits for the financial institutions but also improve the possibility of the financial crisis in the world. Therefore, it is necessary to improve the effectiveness of the financial regulation. In this report, the relevant issues towards the financial crisis are discussed firstly. Then the author discusses the relevant issues towards the financial regulation. Finally, the future of the financial regulation is discussed.
1. Financial crisis
1.1 Ingredients of the financial crisis
From the historical perspective, the first ingredient of the financial crisis is the global imbalances. There is rich liquidity in the capital markets in the world which is guided by the payment imbalances between main regions and countries in the economy all over the world. The global imbalances cultivated the explosion of the financial activities and would sustain because of the development of the global financial markets (Carmassi, et al, 2009). According to Eichengreen and Mitchener (2003), the second ingredient of the financial crisis is the credit boom which will result in the unsustainable leverage. Within the environment of the increasing housing prices, the banks encouraged the households to borrow from the banks up to the value of their full the property and to borrow more once their values go up without regarding the ability of these households to service the debt. The third ingredient of the financial crisis is the financial innovation. There is a kind of constant game in the financial markets and it is dependent by the regulators to moderate the risk taking through tightening the screws and by the banks and other agents to circumvent the regulations and also boost the returns in terms of taking greater risks (Carmassi, et al, 2009).
1.2 The causes of the financial crisis
According to Harrington (2009), the concentration of the popular media is on the Wall Street greed and the financial deregulation. It is agreed that the arrangements with the incentive compensation in the financial departments played a role in the aggressive risk taking of the real estate and the residential mortgages and hence the relaxations of the regulation contributed to the global financial crisis. Hence, it is clear...