US Financial Crisis: Prospects and Perils of Need for New Regulations



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Code : ECC0034

Year :
2009

Industry : Banking, Insurance and Financial Services

Region : Global

Teaching Note: Available

Structured Assignment : Available

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Abstract: This case study is written primarily to facilitate an interesting debate on, in the wake of US Financial Crisis (2008), whether the financial markets were over deregulated? many wonder if this crisis is a derivative of derivatives? Where are the regulators? This case also prompts a debate on the need and modalities of new mechanism required to ensure smooth functioning of financial markets.

Globalisation is the order of the day. With globalisation comes economic liberty, which in turn calls for lesser regulations, which has been the pattern in the global economy since 1970s. The axiom that freedom would breed creativity and risk sharing has driven deregulations in the global financial markets. Surely, financial managers became creative and spread the risk, little knowing that the same virtues would spell doom to the whole world economy. The regulators are contemplating on reformulating and rechristening regulations again, to have a better control on financial transactions and create a balance between exuberance and controlled risk sharing. The wheels for inducing regulations into the financial markets were set in motion with the G20 summit, held in November 2008.


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Pedagogical Objectives:

  • To analyse the impact of deregulations on global financial markets
  • To debate on whether the lack of adequate supervision resulted in financial crisis
  • To discuss the alternatives to be adopted to rectify the current financial system
  • To analyse the expected costs and benefits of the new mechanism.

    Keywords : US Financial crisis, Subprime mortgage, Housing,Recession, Deregulation, Cross Border Capital Flows, Integration of Financial Markets, Globalisation, Financial Derivative Instruments, Financial Services, Economic predictions, Bretton Woods system, Securitisation, The Financial Services Modernization Act

    Contents :
    Deregulation and the Evolution of the Current Financial System
    The Supervisory Mechanisms is that Enough?
    Way Forward: New Mechanisms and the New Impediments


    Case Introduction >>


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