‘Myopic’ financial regulators of the United States

In the following two weeks, I will discuss financial regulation reform (the United States and UK) after financial crisis. This week I will introduce the United States.

The history of the global financial crisis of eight hundred years shows that, country and bank often lack of the suffering consciousness during the prosperous time, moreover, they accumulated too much debt. When the inevitable economic recession came, the risk of financial crisis will not be far away from us. Recently, we can see the complete meeting record and telephone records of U.S. financial regulators in 2007, senior supervisors underestimated the subprime mortgage crisis. Bernanke (2007) believe that the large financial institutions will not face bankruptcy or close to bankruptcy. In fact, the real estate bubble is very obvious, low savings rate and high leverage has become a life way of many American families. Economic growth is slow. They are all the important factor of financial crisis, but financial regulatory authorities of the United States ignored them.

 

Allen (2009) argued that the security of a single financial institution is not enough to ensure the stability of the whole financial system. After the financial crisis, macroprudential regulation has become the main direction of the regulatory reforms. In July 2010, the White House passed the new financial regulatory reform bill, which is the most massive financial regulatory reform since the great depression. In my opinion, the main content of this bill is following:

 

a) The bill set up Financial Stability Oversight Council, which can monitors and deals with systemic risk.

b) Limiting proprietary trading and high-risk derivatives trading of commercial bank, what’s more, putting OTC derivatives market into the regulatory vision.

c) The Federal Reserve will supervise the compensation of enterprise executives, which make them less to pursue high risk investment.

d) Establishing settlement mechanism for those bankrupt financial institutions, to prevent the similar Lehman bankruptcy events that give rise to huge shock on the market.

Hatzius (2013) believe that the downward trend of the United States economy is weakening, some economic data are good and weaken the possibility of the economy back to recession. I also think America's reform measures seem to have some effect.