The Impact of Financial Deregulation and Capital Control on Financial Globalization and International Diversification

Topics: Economics, Investment, Financial crisis of 2007–2010 Pages: 12 (4135 words) Published: July 2, 2012
The growth and survival of most international companies lie in their ability to operate within a marketplace that allows free movement and competition of labour, capital, technology and the spirit of innovation and entrepreneurship. For a company to be successful it got to win in every corner of the world as proposed by Jeffrey Immelt the head of GE hence agreeing with Mr Mills to have a boundary-less way of thinking. Governments are aware that companies would like to produce where it is most cost effective, selling where it is most profitable and sourcing capital where it is cheapest with little worry about national boundaries. Governments are obliged to accept a number of changes in the law through simplification, removal or allowing more freedom in how financial institutions compete. This reduction in governmental control that constrains the operations of market forces are term deregulation. (Sullivan, January 2002). An example of deregulation is financial deregulation which does not remove the control on all regulations against say property rights or fraud. It is an on-going debate whether such changes are beneficial or costly to the economy as a whole. SECTION A

Financial Deregulation
Any dilution which could result to removal of governmental regulations that keeps checks and balances on the activities of market forces within financial institutions is termed financial deregulation. There are a good number of financial regulations which governments tried to flex particularly in US and the UK which affected the international trade as a whole in the past decades. The policy recommendation for the 108th congress in US looked at the following; Repeal the Community Reinvestment Act (CRA) of 1977

Reject the Federal Deposit Insurance Reform Act of 2002 (H.R. 3717) that calls for increasing the deposit insurance limit to $130,000 and gives the Federal Deposit Insurance Corporation greater discretion in the setting of insurance premiums, Enact the Bankruptcy Abuse Prevention and Consumer Protection Act of 2002 with stronger provisions, and Revoke Fannie Mae’s and Freddie Mac’s federal charters and fully privatize those two government-sponsored enterprises. (Rodriguez, CATO HANDBOOK)

In UK variation in earlier laws led to the privatisation of the following; Express coach (Transport Act 1980),
British Telecom (completed in 1984),
Privatisation of London bus services (1984),
Local bus services (Transport Act 1985) and
The railways (1993).
The banking files, Juliet Samuel stated that
‘THE CITY has taken a major step towards becoming the first offshore trading centre for the Chinese renminbi after the FSA began work on loosening up regulations for Chinese banks’(City A.M. page 8 issue 1506, 2011). The goal is to set up a 24-hour renminbi market in the UK which the Treasury has been keen to speed up the progress as part of a major charm offensive to lure Chinese trade through London rather than the Eurozone. The European Union’s deregulation of the air industry in Europe in 1992 empowered EU carriers to operate scheduled services between neighbour EU states. Governments encourage financial deregulations because it increases competition, which improves the efficiency, leading to higher productivity and a reduction in prices as a whole. Some academicians see financial deregulation as a means for companies to grow in size and become more cost effective. Many schools of thought against the idea of financial deregulation also argue that it leads to the removal of barriers between different types of financial institutions causing conflicts of interest. Below is an illustration of one of the financial deregulation before evaluating the whole impact. Gramm-Leach-Bliley Act in 1999

The Gramm-Leach-Bliley Act in 1999 is one of the most important regulatory changes in United States which repealed the remaining sections of the Glasss-steagall Act of 1933, but could not end the Community...
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