Changes In US Financial Regulations Since 2008 Financial Crisis

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The 2008 financial crisis subjected global economies into immense pressure. The period stimulated significant changes as countries rushed to ensure economic balance and sustainability. Assessment of the possible factors that contributed to the crisis implicates issues such as deregulation in the financial sectors that allowed banks to participate in hedge fund trading derivatives. The consequences of a lack of regulation in the banking sector contributed to high demands for mortgages from banks as part of supporting the profitability of derivatives. This perhaps was one of the most significant that contributed massively to the recession that lasted up until 2012.

However, other factors are directly linked to the crisis, which was considered evasive to the economy since the 1930s depression. According to financial analysis leading to the 2008 crisis, the effects of the causative factors were periodically long. The assessment mentions attributes of finance such as securitization of loans, credit default swaps, short term investment horizon and fighting among global financial regulators to be some of the reasons that led to the development of the crisis (Kotz, D. 2009, 305). Considerably, the 2008 financial crisis had overarching implications not just to the global economy but to individuals and the performance of financial institutions.

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The crisis contributed to massive job losses, failure of important businesses, and a significant decline in consumer wealth and partly contributed to the European sovereign-debt crisis. Subject to the negative impact of the crisis that most importantly contributed to the 2008-2012 economic meltdown and recession, it paramount for global economies and financiers to establish measures that world economic recovery. Changes in financial regulations were critical in this perspective as it was one of the areas that played a central role in the development of the crisis. Therefore, this paper explores how financial regulations have changed since the 2008 crisis.

Capital Requirements

The new regulation regime relative to the capital requirements in the USA suggests significant changes subject to the aftermath of the 2008 financial crisis. Analysis of the global financial system rates the US higher than any other developed country in the world, a dimension that has been contributed by the prompt implementation of procedures and regulations that promote the diversity of the financial system and avert any potential future crisis. The regulations on capital requirements for banks emphasize on the concept of solvency and as the market indicators and the characteristics of credit default swap spread suggest during periods of economic volatility in the recent past, current regulations in capital requirements hint stability and ability to deal with potential economic downfall (Tarullo, K. 2016). Current regulations allow minimal increase CDS spread; where according to statistics banks in the USA have a marginal increase rate of between 25 and 50 points compared to other banks in the world.

Recapitulation formed the basis of change in regulating capital requirements in the United States financial markets, which particularly assumed a matter of agency between 2008 and 2009. The prompt of change capital requirements during this period was characterized by the introduction of liquidity programs of the Federal Reserve, forceful response to monetary policy and FDIC’s guarantee of bank debts as part of stabilizing banks against downfall (Wray, L. 2016, 230). The introduction of Liquidity Coverage Ratio and Net Stable Funding Ratio were part of the establishment of capital requirement regulations that are meant to provide a buffer for banks in the event of the financial crisis. The regulations of LCR and NSFR work under the premise that in the event of a crisis, banks are capacitated to hold enough high-quality liquid assets to cover net cash outflow and prevent stress (Tarullo, K. 2016). Further, the regulations outline the benefits of LCR and NSFR in protecting against the risk of liquidity and vulnerability (Kim, D and Sohn, W.2017, 103). It allows the authorities to evaluate the capital performance of a bank and respond accordingly.

The Basel III capital regulation framework adopted in 2013 site changes that require banks and banks holding companies to maintain sufficiency of capital to meet the demands of risks based on assets ratio tests and the leverage ratio test based on consolidation. The current capital requirements according to FDIA dictates that well-capitalized financial institutions should reflect a total risk-based ratio capital ratio greater than 10%, a common equity tier 1 ratio greater than 6.5% and leverage ratio greater than 5% (Rosen,W & Katz. 2019). Further changes in capital regulations impose restrictions on undercapitalized financial institutions that require prompt recapitalization through measures such as divesting, selling off enough shares, and restriction of interest rates paid on new deposits and mandatory compliance with section 23A of the Federal Reserve Act that requires termination of transactions with specifically affiliated institutions. These changes in the regulation of capital requirements are deemed fundamental in preventing the recurring of the 2008 financial crisis (Fraisse et al. 2019).

Deposit Guarantee Scheme

The correlation between regulations on the deposit guarantee scheme and the 2008 financial crisis is a subject of immense implications in the management and control of the financial sector. The tendency of banks to exploit the availability of deposit guarantees increase risks and subject the financial system to a potential crisis (Wray, L .2016, 235). Changes in regulations regarding deposit guarantee schemes are objective on enhancing depositor confidence during tough economic times leading to stabilization of the financial system. The enactment of the Consumer Financial Protection Act in 2011 pinpointed the necessity of promoting oversight and clarification of the law on how consumers can be protected from exploitation from banks. The Act underlines the importance of establishing consumer confidence and subsequently increases the margin of depositors, a fundamental component of sustaining stability in the financial sectors. This regulation is objective on increasing surveillance and monitoring of banks against moral misconduct and exploitation of the deposit guarantee scheme.

Credit Agency Regulations

Credit agencies were contextually implicated to have contributed to the 2008 financial crisis, triggering changes in regulations. It is reported that before the 2008 crisis, market players substantively relied on the ratings of credit agencies about the performance of financial institutions, an issue that influences how marketers conducted business in the financial market. The current policy regulations on the operation of credit agencies emphasize how these institutions should focus on addressing ratings on interest conflicts in addition to increasing transparency regarding rating and the rating processes. It is believed that CRAs provided ratings that were too positive contributing to the financial crisis, issues that have seen current regulations increase scrutiny and pressure on them (Sharma et al,. 2018). The Dodd-Frank Act of 2010 appropriately increases pressure on credit agencies, especially concerning the mandatory requirement of disclosure of methods use to rate financial institutions.

Financial Supervisions

Perhaps, the most evident component of regulation since the 2008 financial crisis is the fact that supervision and surveillance for financial institutions have increased. The Federal Reserve and the authorities have increased the scope of monitoring the performance of financial institutions through policy implementations. The Dodd-Frank Act 2010 detail regulatory changes that allow FDIA to monitor and restrict the operation of the financial institution where they pose threats to the financial system (Sharma et al., 2018). For instance, increased surveillance on the operations of credit agencies is a perfect example of increased surveillance. Considering the changes in the financial system, it can be deduced that the 2008 crisis provided an important learning curve significantly reducing the possibility of recurrence.


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  2. Kim, D. and Sohn, W., 2017. The effect of bank capital on lending: Does liquidity matter?. Journal of Banking & Finance, 77, pp.95-107.
  3. Kotz, D.M., 2009. The financial and economic crisis of 2008: A systemic crisis of neoliberal capitalism. Review of radical political economics, 41(3), pp.305-317.
  4. Sharma, B., Adhikari, B., Agrawal, A., Arthur, B.R. and Rabarison, M.K., 2018. Dodd-Frank Act, Credit Rating Agencies and Corporate Financing and Investment Decisions. Credit Rating Agencies and Corporate Financing and Investment Decisions (December 6, 2018).
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