Critically discuss the developments in banking regulation that have Essay - 1

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 track record should be kept so that similar incidences are not replayed in a given economy. However, this has not always been the cases. Various financial crises have often been recurrent due to the poor response mechanisms by the local and at times the international regulatory agencies. Failures of various governments in managing trade liberalization. The governments in these cases have failed to properly introduce their national economy into the international capital market (Raghavan, 1998). An important point to note in the issue of the economic and financial crises is that they are similarly characterized in both the developed and the developing countries. The causal factors and the manifestation of the economic crises are more or less the same across all the economies in the world (Raghavan, 1998). There are also some lessons that can be learned from the global financial and economic crises and that can be used to provide an insight into the possible preventive and management mechanisms for future crises. One lesson is that it is not appropriate to make changes in the financial system of a given country when the country is already experiencing a crisis (Raghavan, 1998). It was also observed that ‘when currency turmoil is associated with financial difficulties, raising interest rates may simply worsen the situation by bringing about widespread corporate and bank insolvencies’ (Raghavan, 1998). Besides, it has also been noted that it is often a big loss to a given economy if the currency in the economy loses value in the international money market when it had international creditors (Raghavan, 1998). 2. Causes of an economic and financial crisis The proper management of financial crisis requires a thorough understanding of the possible causes of the crises and the features characteristic of such situations. A reduction in the average income caused by underemployment or unemployment increases the poverty level among a given population. This cou pled with an increase in the cost of living like food prices and other human needs provides a proper avenue for an economic crisis (Raghavan, 1998). The situation then worsens and can only be redeemed by addressing unemployment issues, lowering interest rates, expanding liquidity and increasing public expenditure by the governments (Raghavan, 1998). 3. Developments in banking regulations The banking regulatory measures are aimed at strengthening the global capital in order to have a flexible banking industry. The regulatory developments aim at improving the ability of the banking industry to absorb stress that follows a given financial stress so that the overall effect is not felt on the economy. The efforts also aim at ensuring proper governance and developing techniques for risk management by the banking institutions. The regulations ensure that transparency and accountability are manifested by the banking institutions. They outline the appropriate procedures for market disclosure s by the financial institutions to enable the investors build confidence in the banking institutions. The crises that have been witnessed gave out a picture of what the regulatory bodies have been in the recent past and that led to their failures in mitigating the crises. The characteristics of the crises showed that there were no proper techniques for prudential regulations by the regulatory bodies. Firstly, it was observed that the regulatory procedures were not sufficient enough in managing