...Capital Market Research Paper On Financial System Reform Presented to Professor Jean Holt October 29, 2015 Prepared by Yi Que Abstract: 1998-2013: An Analysis of the Tangible and Intangible Costs of Financial Regulatory Reform and Deregulation (The Financial Institutions Deregulation and Reform Act 1999* and the Dodd-Frank Act 2010) on United States Capital Markets and Institutions as measured by Debt Loan Types and Bank Profitability. Key words: Glass-Steagall Act, Financial Institutions Deregulation and Reform Act, Dodd-Frank Act, investment bank, financial statements. II. Table of Content I. Cover Page1 II. Table of Content2 Abstract, key works2 III. Introduction3 IV. Statement of Problem5 V. Background12 V. Results from Research & Summary13 VI. Works Cited 14 III. Introduction United Sates financial reform dates from the last century, in 1930s’ Great Depression. To have a brief talk about US financial reform, which is a long and arduous project. Aim to reach the goal that has to include three important acts: Glass-Steagall Act, Gramm-Leach-Bliley Act, and Dodd-Frank Act. Throughout history, the financial system in US has experienced the mixed operation and separated operation processes, as well as various financial institutions and regulatory authorities continue to be perfected. US financial reform and innovation continue to promote the US economy continues to develop and progress. Next, I will briefly introduce each act in the basic level, and I will explain...
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...nt went through a period of deregulation. Deregulation is a reduction of government involvement and control within an industry. Did this deregulation lead to the 2008 financial crisis? This is a hot button topic that is highly debated and causes a great deal of controversy. The financial crisis of 2008, known as the Great Recession, impacted the entire country and practically every individual citizen. Many politicians, such as Speaker of the House Nancy Pelosi, look for an easy blame or a scapegoat, for example, the deregulation by the Bush Administration. Pelosi has been quoted saying " the Bush Administration's eight long years of failed deregulation policies have resulted in our nation's largest bailout ever, leaving the American taxpayers on the hook potentially for billions of dollars" (Gattuso). The issue with that statement is that the economic deregulation she speaks of did not take place during the Bush Administration, but many years prior and the laws of that time are not controversial in today’s economic situation. Rather more recent regulatory laws are to blame for the financial crisis of 2008. Why did we Regulate in the First Place? The Great Depression is unopposed when it comes to economic downfalls in the United States. The financial hardships that took place during the 1930s rocked this country to its core. But what caused this large scale economic collapse? The Great Depression produced a sweeping ...
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...Global Lessons from the Recent Financial Crisis: Need for Reforms Jason Khan – 212857264 Yiwen Shen – 212828810 Alexander Grynszpan – 212811618 Xueyan wu - 212828380 INTRODUCTION Mortgage Backed Securities Lack of Regulations in the Banking System Lack of Regulations in the Credit Rating Agencies Subprime Mortgages Financial Crisis of 2007-2009 Lack of Regulations of over-thecounter derivatives Introduction to the Financial Crisis Causes of the Financial Crisis Reforms introduced International response Conclusion Cause: Subprime Mortgage - Housing prices were on the rise à More difficult for consumers to purchase - Investment banks purchased the mortgages from individual lenders, re-packaged them, and sold them to an even larger quantity of small and large investors - Borrowed money to magnify the outcome à Created collateral debt obligations (CDO) - Mortgages were sometimes given without down payments, or assurance of repayments - When the housing bubble “popped”, investment banks held massive debts without means of paying them à led to declaration of bankruptcy Introduction to the Financial Crisis Causes of the Financial Crisis Reforms introduced International response Conclusion Cause: Mortgage backed securities - Important players in the Crisis: Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC), or as known as Fanny Mae ad Freddy Mac - Through mortgage backed...
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...Reserve System & Financial Crisis Alejandro Cuervo Wilmington University Abstract As we go into our research on the financial crisis of 2007, we will try to answer some questions about what actually cause of the failure of our financial system, which almost collapse the dollar. While there are plenty of faults to go around on what cause this crisis, there was never a clear path on how to reverse the demand that was cause by repealing the Glass-Steagall Act of 1933. Although there has been other regulations and acts pass since the repeal of the Act of 1933, the ability to restore and strength our dollar has been an uphill battle to take control of it. What was known within our economic system to readjust and rebuilt had not worked to establish balance playing field on the world stage or our domestic economy. As we look forward toward corrective action though the Dodd-Frank Act, Sarbanes-Oxley Act or the Global Legal Settlement of 2002 which reduced the conflict of interest as did the Sarbanes-Oakley Act. These conflicts encompass “underwriting and research in investment banks, auditing and consulting in accounting firms and credit assessment and consulting in credit rating agencies.” (Sanati, 2009) So while we have had a slow and diosmose recovery from this crisis, I will try to answer some of the questions presented to us today on our ability to fully recover and instill some preventative measures to ensure a worst and more devastating financial crisis from taking hold...
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...Isabella Jendryka IT Audit The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank for short, is a law that is aimed to transform the world of financial services, through more stringent, and industry specific regulation. The act was passed on July 21, 2010, under President Barack Obama's administration and now performs as a corrective control for the damage that was done during the 2008 financial crisis. At over two thousand pages long, Dodd-Frank serves as a regulatory guideline for businesses, in order to ensure that history does not repeat itself. The act is named after two of its strongest advocates, U.S. Senator Christopher J. Dodd and U.S. Representative Barney Frank. The Dodd-Frank Act aims to repair the financial...
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...“When the US sneezes, the world catches a cold” (Keating). The 2008 economic crisis didn’t occur suddenly. Signs started to appear in 2004, with the steadily increase in housing prices, when “subprime lending” was generally practiced. Subprime lending is the practice of lending loans to people who may have difficulty maintaining the repayment schedule which sometimes reflects setbacks, such as unemployment, divorce, medical emergencies, and more. Banks would usually lend out loans for an interest rate 100% or more for the values of their houses. Most realtors thought that the prices would have returned to a maintainable level, however, they failed to realize the amount of unreliable loaners (Amadeo). Many people began to lose their trust in the banks and their government, and started to criticizing the Community Reinvestment Act. The Community Reinvestment Act encourages citizens to put more of their money into banks in order to help surrounding communities grow (Community Reinvestment...
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...FINANCIAL CRISIS OF OUR TIME WHAT HAS HAPPENED In September 2008, the Bankruptcy of Lehman Brothers and the collapse of AIG, following the demise of Bear Stern and the near collapse of Merrill Lynch triggered a financial crisis. The result was a global recession which cost the World tens of trillion of dollars, rendered 30million people unemployed and doubled the national debt of the U.S. But this crisis was not an accident. It was caused by an out of control calamitous financial industry. In the aftermath of the Great Depression, the US enjoyed a 40 year economic growth without a single financial crisis. The Financial industry was tightly regulated. Critical to these regulations was The Banking Act of 1933, known as the Glass-Steagall Act, which separated commercial banking activities from Investment banking activities, meaning Banks with consumer deposits were prevented from engaging in risky investment banking activities. Most regular banks were regular businesses and they were prohibited from speculating with depositors’ savings. Investment banks, which handled stocks and bonds trading, were small private partnerships. In the 1980’s, the financial industry exploded. The Government, with support from Economists and Financial lobbyists started a 30 year period of financial deregulation. In 1982, the Government deregulated the Savings and Loans companies allowing them to make risky investments with depositors’ money. By the end of the decade, hundreds of Savings and Loans...
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...by examples that demonstrate how the Swedish model enabled quick and effective implementation and has provided the Swedish banking sector stability since its inception in1992. Sweden has a socialist democratic system with a capitalist economy, a socialist embedded welfare system and a deregulated financial market which has benefited from constant economic growth (Central Intelligence Agency, 2010). Sweden’s growth continued till the 1990’s when it experienced the ‘1990 Bank Crisis’ similar to the American subprime mortgage crisis (Phillips, 2009). The United States has a liberal democracy with a market orientated economy which is one of the most powerful economies in the world with a GDP of $14.29 trillion (Central Intelligence Agency, 2010). However unlike Sweden the United states economy does suffer from insufficient economic infrastructure and medical and welfare systems (Central Intelligence Agency, 2010). Both Sweden and the US have central banks, the Riksbank and the Federal Reserve Bank respectively. Riksbank’s primary role is monetary policy and responsibility for stability within the economy and, in doing so has to act with in the guidelines of the Sveriges Riksbank Act (The Sveriges Riksbank, 2010). The Riksbank works closely with the Swedish government in...
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...aftermath of the financial crisis of 2007, there has been a great deal of debate regarding the key underlying causes. For example, when people discuss the collapse of the financial markets, the most frequently mentioned word is subprime mortgagewhich is considered as the culprit of the crisis. Yet, is subprime mortgage the root of the crisis? If it was, then the question would be how this type of financial product, which is only marginal part of the financial market, could cause such a catastrophic crisis. Specifically, systemic risk was developed. Essentially, subprime mortgage is a mere part of superficial reasons of the crisis and was induced by other underlying factors which will be discussed in the essay. Due to the current situation, it is necessary to correct such misunderstandings. According to the statistics issued by the National Bureau of Statistics of China, GDP growth rate of China has dropped from nearly 12 per cent three years ago to a more subdued 7.5 per cent in the second quarter. Despite a year and a half of recession, Euro zone’s GDP rose at an annualised rate of 1.1 per cent in the second quarter, this pickup still leaves GDP across the Euro area 0.7 per cent lower than a year ago (The Economist, 2013). This essay will argue that in order to resolve the current economic problems it is crucial to identify the underlying causes rather than accepting superficial reasons. It will also be argued that there are three key reasons for the crisis: monetary policy...
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...The financial crisis of 2008 rocked the global economy. As one major investment bank went bankrupt, other American financial services institutions were in poor health due to their own banking practices. However, these practices occurred due to the failure of government regulators. Ronald Reagan’s plan to stimulate the American economy in the wake of the 1980s recession led to sweeping deregulation in the financial services sector (Komai) (Inside). This deregulation and the failure to properly enforce regulatory powers by those in the Federal Reserve and Treasury Department led to increasingly risky behavior by banks (Inside) (Das) (Rajan). The repeal of The Glass-Steagall Act in the late 90s meant that the banks engaging in these risky operations were larger than ever before and were using depositors’ money in order to trade for the benefit of the firm rather than its clients (Roubini) (Rajan) (Sorkin) and it is that risky behavior that ultimately led to the near collapse of the world’s economy. Although banking leadership must be held responsible for the practices that many institutions in the financial services sector engaged in (Sorkin), the failure to adequately regulate the banking industry gave banks the opportunities to engage in the behavior that caused the crisis (Inside) (Rajan) (Taylor). In the years since the crisis, and as the global economy continues in its efforts to recover, many have called for strict reform of Wall Street regulations (Acharya). Legislative...
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...Guohui Huang ACCT 431-Fall 2014 09/19/2014 Dodd-Frank Act The Dodd-Frank Act, also known as the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act was introduced in the House of Representatives by Financial Services Committee Chairman Barney Frank, and by the Senate Banking Committee former Chairman Chris Dodd and therefor named after the two men. The Dodd-Frank represents the most comprehensive financial regulatory reform measures taken since the Great Depression; it was initiated in response to the devastating Financial Crisis of 2007-2008. In simplest terms, the Dodd-Frank Act is a law that places major regulations on the financial industry. In general, the 2,300-page act covers virtually every aspect of the financial services and banking industries. The Act imposed restrictions and reforms upon the industries that had previously been lacking of any substantial regulations. In 2010, President Barack Obama signed the Dodd-Frank Act in to Law to help secure the future economy of the U.S. However, before the official passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, America had gone years without accountability for Wall Street and other large banks. The country suffered its worst financial crisis since the Great Depression due to this failure to hold these banks liable for their actions. Businesses failed, the housing market crashed, personal savings were wiped out, and millions of jobs were lost. There are just...
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...Date The economic crisis that struck the world between 2008 to 2009 had such resounding adverse impacts that brought even the mightiest economies to its knees. Even at present, the far-reaching effects of the crisis remain almost palpable and may be seen in high unemployment rates, economies still in recession and seemingly insurmountable national deficits. The United States, where the crisis had its beginnings continues to suffer from the recession even if it is gradually recovering. The present problems in the Euro zone may be partly attributed to the recession of 2008. Because of these, many scholars, economic analysts, researchers and businessmen continue to endeavor up to now to discern what the real cause of the economic crisis was in the hopes that it will not happen again. Many people attribute the global economic meltdown to the collapse of the subprime sector in the United States. To put it simply, the mortgage sector was blamed for the crisis because of how many financial instruments were collateralized by mortgages of people who had bad credit histories. When too many of them failed to meet their obligations, it began a series of defaults that ultimately collapsed not only the mortgage industry but the financial industry as well. All those that have investments in both sectors, local and foreign entities, also became affected as they lost what they have invested. However, a crisis of such scale as that which took place in 2008 to 2009...
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...Analysis Paper The Consumer Financial Protection Bureau began operation in 2011, after the failures within investment banks, commercial banks and government sponsored housing enterprises caused a financial crisis. The crisis caused a collapse of capital markets related to consumer lending. The results of the crisis included unemployment rates at 10 percent, a decrease in home values by 40 percent or more, and a sharp decline in household savings. Although the crisis affected all Americans, those that were most negatively impacted included the Hispanic and African American communities. The losses felt by these minorities widened the gap in financial assets that bipartisan policies had been trying to reduce. The driving force behind the financial losses within these financially vulnerable communities was mortgage lending due to the fact that some lenders were sold subprime mortgages although they qualified for prime rates. After the financial crisis, congress determined that regulation practices among federal bank and financial product regulators, as well as the Federal Trade Commission (FTC) was ineffective because it lacked adequate oversight and enforcement mechanisms. In attempts to remedy this issue, congress enacted legislation creating the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). This Act reorganized the existing consumer financial protections into a new federal agency named the Consumer Financial Protection Bureau (CFPB), which...
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...surrounding financial services compliance along the industries lines of legislative, economic, industry driven, political, environmental and possible scandals relating to all of these areas. The information has been gathered from the British Virgin Islands jurisdiction from sources such as Financial Services Commission, British Virgin Islands Government and internationally, from the International Monetary Fund, the Organization for Economic Co-operation and Development and the text, International Compliance Training Ltd. The research is basically theoretically driven to ascertain if the industry would be better off with regulation or left for participants to operate freely. Introduction: Scandals (such as Enron, WorldCom), the September 11 attack and financial crisis of 2007 and 2008 brought attention to loopholes of legislation that market participants have been taking advantage of for years. It was never the intention of regulation to cause market abuse, insider dealings or loss of investments or tangible properties. This paper details the shortcoming of legislation but also highlights how an effective regulatory environment can be achieved. What is Regulation? Regulation is defined according to the International Compliance Training Ltd as a set of binding rules by a public or private body with the necessary authority to supervise compliance and apply sanctions, penalties etc. for non-compliance (International Compliance Training, 2015). All financial services...
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...Repeal It is logical to believe that Sarbanes Oxley Act, Dodd Frank Act and JOBS Act exists for a reason. Although politic is a very complicated topic and has some sort of influence in establishing a new federal law, SOX, Dodd Frank Act and JOBS Act are reasonably justifiable. After WorldCom and Enron incidents, Sarbanes Oxley Act was established to regulate auditors and public company. After Late 2000’s mortgage crisis and others, Dodd-Frank and JOBS Act was established to regulate financial industry under federal government. Federal regulation seems like always came after a big crisis or downfalls to fix the issue and hopefully prevent future reoccurrence. However, federal government looked like a little bit too reactive because the regulations were always enacted after something bad happened. To make the matter worse, there is no way to proactively prevent any or all frauds or misconducts from happening due to their variety of types. In order to discuss should Sarbanes Oxley, Dodd Frank and JOBS Act be repealed, let’s look into each Act individually and in a more detail sense, In Sarbanes Oxley, some of the important aspects that SOX 2002 deals with are auditor independence and enhanced financial disclosures. It also established Public Company Accounting Oversight Broad (PCAOB) to monitor and oversee public firm’s financial activities. Because there was lack of Audit regulations, it later leaded to the big Enron fraud. Therefore it was clear that something has to be done...
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