Do we have too many regulations to avoid another great recession?

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Expert Solution

Great recession often comes when no enough regulations are put up to control crisis at nascent stage. The great economic depression of 1929 was caused by the lack of any control by the government and minimal role of Federal Reserve. Such crisis could have been avoided had there been larger role of Federal Reserve.

Similarly, in 2008-09, banking regulations were not strong enough check in deteriorating quality of financial assets. Lack of capitalization and liquidity led to the chaos in financial sector.

Dodd-Frank financial sector reforms is landmark actions and it would help to avoid the instances of liquidity and assets crunch. it stresses upon the maintaining capitalisation and liquidity.

Further, Basel III norms helped significantly to reduce the severely of crisis in European countries.

To sum up, there have come up many regulations and role of central bank also has become more internalised Thus, it is expected that next crisis would not be too severe and profound.

Rahul Sunny answered 1 year ago

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