Financial regulations definition, how they prevent another crisis j gastroenterol hepatol impact factor


That meant they needed assets, like Treasurys and other government-backed bonds, they could quickly sell for cash if another financial crisis loomed. This increased liquidity had another effect. The 25 largest banks increased their holdings of these bonds by 88 percent between February 2013 and February 2015. That pushed ​yields on long-term Treasurys down, even though the economy was getting better and the stock market was booming. Bonds affect the stock market by being its competition. Although the returns on these are lower, bonds compete with stocks for investors’ money because these investments offer more security.

The Fed’s requirement also reduced liquidity in the bond market itself. Many banks held onto bonds instead of buying and selling them. That made it harder to find buyers when needed. Reduced liquidity like this could have contributed to the bond flash crash in 2014. The Fed’s regulation could make a bond market collapse more likely. At the same time, it reduces the likelihood of any particular bank failing. How Regulations Prevent Another Crisis

Regulations cannot prevent the kind of innovation that created products like credit default swaps. Businesses create profitable products in unforeseen areas. Regulators cannot, and should not, stop this innovation. It is up to individuals to inform themselves and stay alert when making financial decisions. Obama Promised to Do Even More

In his 2008 campaign, Barack Obama promised tougher regulations on insider trading. He wanted to streamline regulatory agencies, especially those that oversee banks that borrow from the government. He wanted to establish a financial market advisory group, improve transparency for financial disclosure, and crack down on trading activities that could manipulate markets.

The Securities and Exchange Commission is at the center of federal financial regulations. President Obama appointed Mary Schapiro as the chair. She was another advocate for increased regulation. One of the first things she did was to increase the regulations on the SEC itself.

The Federal Reserve took control of companies that were too big to fail, like the American International Group Inc. The Federal Deposit Insurance Corporation is in charge of winding down commercial banks before they go bankrupt. But these agencies didn’t cover hedge funds and mortgage brokers. Sarbanes-Oxley

In 2002, Congress passed the Sarbanes-Oxley Act. It was a regulatory reaction to the corporate scandals at Enron, WorldCom, and Arthur Anderson. Sarbanes-Oxley required top executives to personally certify corporate accounts. If fraud was uncovered, these executives could face criminal penalties. At the time, many were afraid this regulation would deter qualified managers from seeking top positions. Glass-Steagall Repeal

In 1999, Congress repealed the Glass-Steagall Act. The repeal allowed commercial banks to invest in derivatives and hedge funds. It also allowed investment banks to take deposits. It signaled a shift toward allowing the market to regulate itself. As a result, firms like Citigroup invested in credit default swaps. These firms required billions in bailout funds in 2008.