Critically discuss the developments in banking regulation that have Essay

Critically discuss the developments in banking regulation that have been, and continue to be, put in place as a result of the ec - Essay Example A wide spread unemployment, inflation, poverty, layoffs, financial stress were the words normally echoed on all types of media during the entire period beginning from 2007 to the end of 2009. In the same period, the rates of foreclosure were inversely attached to the housing price inflation (Taylor, 2009). Many investment banks were struggling to survive, mergers, bankruptcies, acquisitions and nationalization became common (The WTO Doha Round and Regionalism, 2009). Many causes contributed towards the development of the financial crisis. Sub-prime loans, low interest rates, financial innovations, a lack of proper supervisory and regulatory measures from the side of regulatory and supervisory authorities, and the total collapse of integrity of credit rating agencies added fuel to the fire of the global financial crisis. Additionally, many authors believe that Basel Committee on Banking Supervision was ill-equipped and confused over some of its basic definitions towards the risk manag ement, and as a result, this also contributed its share in the global financial crisis. Soon after its impacts, the world financial and political leaders gathered to discuss and devise corrective actions in response to the financial situations. In EU, at micro and macro levels, different regulatory and supervisory sound regulations were recommended; European Systemic Risk Council (ESRC) was recommended to play it’s for the risk management. At the same time, European System Financial Supervision (ESFS) was devised to monitor the financial affairs at the micro level, while in the United States of America, Consumer Financial Protection Agency (CFPA), strong regulatory and supervisory measures for financial firms and financial markets were proposed. As the financial crisis has affected the global economy, undoubtedly, it requires the international financial institutions to coordinate their efforts, ensure transparency. And, the international regulatory convergence has become nece ssary to avoid such financial crisis in future. In the subsequent parts of this paper, causes of financial crisis, different interpretations over the issues are discussed after the section critically highlighting causes. Subsequent to that, in U.S. and the EU, the corrective measures are explained followed by some recommendations and proposals are provided. Then, international context and effectives of these banking regulatory measures are mentioned. Causes of the global financial crisis Many causes contributed towards the financial crisis. First, sub-prime loans and the real estate bubble were among the main causes (Lannuzzi & Berardi, 2010). Udell (2009) explains that the sub-prime loans were easily available to the ordinary Americans before the financial crisis emerged. This type of loan was given to those individuals and institutions that did not have positive credit worthiness. They were those whose loan applications were declined by many credit lending financial institutions. Furthermore, many under-developed states were transferring their savings into American banks and other financial institutions ((Shomali & Giblin, 2010). In the late 1990s and early 2000s, a considerable amount of savings were attracted by many American banks and other financial institutions. Since many of these countries were enjoying economic growth