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Two Different Regulatory Models That Can Be Adopted In the Financial Sector Essay Example

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Two Different Regulatory Models That Can Be Adopted In the Financial Sector

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Two Different Regulatory Models That Can Be Adopted In the Financial Sector. The recent subprime financial crisis has confirmed the mismatch between regulation and supervision as well as global banking and financial activities. The general consensus today is that it is too late to continue with different national (or state) regulators and supervisors. (Alessandrini, Fratianni and Zazzaro 2009, p. 8) An integrated regulatory agency as proposed by the centralized model would be able to monitor the activities of integrated firms and markets more effectively than separate agencies as well as effectively develop and implement appropriate responses to financial threats.Undoubtedly, the recent financial crisis will give policymakers the political backing to adopt stronger position and models in regard to financial regulations.

One of the most likely model or the best potential framework is the so-called Basel II, which is considered to be a strong domestic regulatory model. As mentioned by this paper, the financial crisis that hit the US was caused by an internal shock and, in this regard, Basel II is seen as the best solution because of its home supervision emphasis. Basel II focuses on the advanced internal ratings-based (A-IRB) approach which enables the model to lead improvements in capital regulation, greater risk sensitivity of minimum capital requirements, the generation of a common “language” to assist supervisors and market actors in their evaluation of banks, and enhanced risk management. 139) This model is touted to be a considerably stronger framework when one takes into account the administrative and institutional factors that will shape the A-IRB approach in practice. The impact of Basel II is best seen in the way it would require the setting of standards and best practices, affecting positive behavior among the market participants.The search for the appropriate model for the financial sector after the recent financial crisis must be conducted not as a knee-jerk reaction or as a short-term effort just to diffuse the crisis. Policymakers should be particularly careful in changing the existing regulatory schemes, in spite of its obvious weaknesses and shortcomings. Extensive studies should be undertaken in order to identify what worked and what did not. Identifying the best possible regulatory model, should not be undertaken by examining models in isolation. There is a need to compare models and past experiences in order to. Two Different Regulatory Models That Can Be Adopted In the Financial Sector.

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References

Allessandrini, Pietro, Fratianni, Michele and Zazzaro, Alberto. The Changing Geography of Banking and Finance. Ancona: Springer, 2009.

Litan, Robert, Pomerleano, Michael and Sundararajan, Vasudevan. Financial sector governance: the roles of the public and private sectors. Brookings Institution Press, 2002.

Schwab, Klaus, Roubini, Nouriel and Bilodeau, James. The Financial Development Report 2008. Geneva: World Economic Forum, 2008.

Soros, George. “The Crisis and What to Do About it. NYBooks. Dec. 2008. 20 April 2010, <http://www.nybooks.com/articles/archives/2008/dec/04/the-crisis-what-to-do-about-it/>

Tarullo, Daniel. Banking on Basel: the future of international financial regulation. Washington, D.C.: Peterson Institute, 2008.

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