The current financial crisis that has caused world economic slowdown is forcing government agencies and financial market to re-think on their practices in order to avoid any possible future occurrence of the same. The financial crisis affected regulators and financial market as well and this reason why regulatory agencies are calling for strict supervision of financial markets (Bernanke). Impacts on regulation
One of the regulators in the financial market is the Federal Reserve responsible for developing procedures used to supervise the markets.
The current financial turmoil has forced the Federal Reserve to re-look at its supervision and macro-prudential orientation to financial oversight (Bernanke). The financial crisis has also led to the development of new tools by regulators e. g. the Federal Reserve Term Auction facility that can be used to tackle the financial crisis. Federal Reserve and other financial markets supervisors e. g.
Financial Stability Board, Presidents Working Group on financial market and Senior Supervisors Groups have realized the importance of collaboration as well as international corporation so as to learn from other experiences abroad to gauge the performance of US institutions (Bernanke).
There have been concerted efforts to ensure prudential supervision and consumer protection so as to avert future crises. Regulators have also emphasized on increased vigilance to ensure that the set standard are met. Regulators e. g. the Federal Reserve have been forced to improve on their internal procedure e.
g. on communication of information in order to establish priority areas that need supervision and analyze emerging trends in the financial markets. Continuous supervision has also become an important aspect of consumer compliance to ensure enhance monitoring of largest banks (Bernanke). Impacts on financial system Clearly one of the biggest ways in which the financial market has been affected by the crisis is on the aspect of supervision. The regulatory agencies like the Federal Reserve has been forced to re-evaluate how they supervise the financial markets.
The effects of this is that the financial market is able to operate according to the set standard thus minimize the recurrence of a crisis like this in the future. The financial crisis was also affected the products introduced by financial institutions. The regulators require that companies evaluate the possible unintended consequences of the products that they introduce to the market. The way companies compensate its management and employees is another factor that is under scrutiny by the regulators. Compensation and bonuses awarded to employees should be in line with the long term objectives of the company.
The corporate governance and risk management is the factor that companies are required to consider in order to ensure long term survival of these institutions. Improved regulation The key to avoiding future financial crisis is by enhancing regulation within the financial sector. This includes expanding the capacity of the existing regulatory and ensuring compliance of the set standard of operations (Bernanke). One of the way in which regulation can help improve the financial sector is in the area of new product introduction. Companies should be able to analyze the potential effects of new product they introduce into the market (Bernanke).
Management of risk is the other aspect that companies should look into. Companies need to develop risk management techniques that ensure their long term survival. Apart from managing these risks, companies should have capabilities of identifying risk facing them. Regulation on capital and liquidity is one of the key elements in financial sector. Companies are required to be adequately capitalized in order to fund their operations well. It is no secret that the current crisis was precipitated by lack of liquidity in the market. Conclusion
It is clear from the current financial crisis that to ensure sound financial market, improved regulation and prudent financial operations on the part of companies is important. Companies are required to maintain adequate liquidity, capital and institute risk identification and management tools. On the other hand regulators should increase on supervision to ensure adherence to set standards (Bernanke). Works cited Bernanke, Ben S. Federal Reserve. 9th May 2009. 26th May 2009 <http://www. federalreserve. gov/newsevents/speech/bernanke20090507a. htm>.