Question

The Global Financial Crisis

9. Poor macroprudential regulation failed to prevent what? What does good regulation lead to?

10. Good Micro-Prudential Regulation involves?

11. Who was Brooksey Born? What did she push for? Did she succeed? Why?

Answer 1

9. Macro prudential regulation failed to prevent the financial crisis the financial crisis has a number of lessons common to previous episodes no doubt they were market or private sector failures discussed in previous section but regulation is supposed to correct those failures also failed miserably monetary policy was also important culprit. Credit goes live in the housing price bubble leading to be cladding standards and large Miz allocation of resources crisis was caused by excessive expansion of credit and price bubble in the house in sector.

Regulation leads to prosperity in the economy saving institution play a vital role in modern economy and indeed in our everyday lives we simply could not manage without them entrepreneurs bankers in individuals are like we all benefit from a stable banking and financial system financial stability is there for the public good a good regulation leads to financial stability a good regulation of regulators and supervisors can rectify a market failure of this kind and it is in public interest for them to do just that it isn't a question of whether how to regulate and it is this matter of how to regulate that I would like to discuss now not by focusing on specific legal provisions. The regulation has to be flexible and able to keep Pace and developing in the financial system regulation should be simple not Complex the regulation has to be coherent in the terms of content and it should be guided by the principal of proportionately the past history of regulation has been one of the constant up and down period SEBI Regulation have been usually followed by a crisis a good regulation will leave to the prosperity a good banking system a good economy and strong economy base good regulation is any regulation that reduces the extent of fraud and corruption in the financial sector without imposing excessively high cost to the society

10. Microprudential regulation is firm-level oversight or financial regulation by regulator of financial institution ensuring the balance sheets of individual Institutions are robos to shocks. The good micro Prudential regulation system involves a better customer protection ensuring solvency of financial institution strengthens consumer confidence in the individual firm and the financial system as a hole in addition if a large number of financial firms sale at the same time this can distract the overall financial system it reduces the systematic risk.

11.Brooksey Born is an American attorney and former public official who from August 26 1996 to June 1 1999 was the chairperson of the commodity future trading Commission the federal agency which oversees the future and commodity option market during the tenure she lobbied Congress and the President to give the oversight of of exchange market for derivatives in addition to its role with respect to exchange trade derivatives by her warnings were ignored are dismissed and her calls for reform registered by other regulator's resigned shortly after Congress pass legislation prohibiting her agency for regulated derivatives. Due to litigation again bankers trust company by Procter and grammar and other corporate clients born on 18 shortcomings and regulation of over the counter derivatives of first step in the process of writing regulations to supplement the existing regulations of the Federal Reserve system the options clearing corporation and the National Association of insurance commissioners born was particularly concerned about swaps financial instruments that are traded over the counter within banks insurance companies another funds and does have no transparency except to the two counterparties and the counterparties regulator their response dismissed bones analysis and focused on hypothetical possibility that regulation of swaps and over-the-counter transactions would create a legal uncertainty regarding such Financial Institutions they are you that imposition of regulatory cost would make financial Innovation and encourage financial capital to transfer its transactions of show financial Innovation and encourage financial capital to transfer its transactions of show the disagreement between Born and executive office top economic policy advices have been described not only a classification war of ideologies trillion dollar hedge fund called Long Term Capital Management was near collapse using mathematical models to calculate the risk long term Capital Management whose derivatives leverage dollar 5 million into more than dollar one trillion doing business with 15 of wall street's largest financial institution the derivative market continue to grow early throughout both the terms of Washington administration the derivative transactions were not regulated Nova investors able to evaluate long term Capital Management exposure born stated that she had thought that long term Capital Management what exactly what she had been worried about in the last weekend of September 1998 the president's working group was told that the entire American economy in the balance after intervention by the Federal Reserve the crisis was averted it's hearings into the crisis greenspan acknowledge that the language had been introduced into an agricultural bill that would prevent the derivative market from regulating the derivatives which were at the phase of crisis that threatened the United States economy there were more failures the US economy would have before some regulation in the area might be appropriate the substance of born morning with the simple assertion that the degree of supervision of regulation of over the counter derivatives market is quite adequate to maintain a degree of stability in the system warning was that there wasn't any regulation of them greenspan didn't believe that road was something that needed to be enforced any assume that she probably did and of course she did under heavy pressure from the financial lobby legislation prohibiting regulation of derivative by The Bourne agency was passed by the Congress won resigned