Crisis management: framework incorporating quality issues
The 2007-09 financial crisis was the most serious such event since the Great Depression. The crisis manifested itself in credit losses, write-downs, liquidity shocks, deflated property values, and a contraction of the real economy. The sharp contraction in U.S. gross domestic product in 2009 traced to the adverse effects of the crisis on household consumption and business Investments. In the housing sector, banks took advantage of low interest rates and securitization opportunities to institute relaxed lending standards that drove the boom in mortgage lending from 2001 to 2006. Author notes that reforms should be based on solid principles, including reduction of system risk and contagion and increased transparency to promote investor protection. Any new financial regulatory structure must be able to achieve these goals, while acknowledging and managing trade-offs between enhancing accountability and mitigating systemic risk from contagion. Literature review
Author writes that effective regulatory reform can occur only when policymakers take account of fundamental regulatory principles. The most important of these principles is that regulation should reduce systemic risk. Systemic risk is the risk of collapse of an entire system or entire market, exacerbated by links and interdependencies; with systemic risk, the failure of a single entity or cluster of entities can cause a cascading failure. Regulation should be imposed for various reasons like Regulation Disclosure is important for investors’ well-being, in view of the potential for an individual investor to undertake a less-than-adequate investigation before making an investment decision ,for improving the quality of information and the ease with which it is disseminated is important in protecting consumers from instances of unfair, predatory, and fraudulent behavior. The FDIA enables regulators to more effectively combat systemic...
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