The recent global financial crisis began in 2007 and was triggered by a given sector of US housing finance market. The financial crisis has affected countries around the world and has extended to the economies of these countries. “This made the policy makers in different countries to take actions geared toward reforming international standards and to ensure a reliable international financial regulatory system”1.
Countries Regulatory Response to the Current Financial Crisis
United States
In the US, The financial crisis weakened the financial market and led to the drop in stock value for major banking institutions. This affected the investors’ confidence greatly. Banks increased their interest rates greatly due to the fear of the high risk. There was also increase in unemployment rate in the country2.
The government came up with two major legislation in 2008 to address the situation. The first one was 2008 Economic Stimulus Act, which intended to give business investment incentives such as tax refund for low-income individuals and increasing the mortgages. The purpose of the act was to control the fall in house prices. Another type of Legislation was the 2008 Housing and Economic Recovery Act. It contained a number of measures to be taken to contain the housing crisis. The government aimed at increase house prices.3
In july 2010, the United States came up with Dodd–Frank Wall Street Reform and Consumer Protection Act, which implimented financial regulatory reform. This legislation covered major issues like, consumer protections with authority and Indipendence among others
Australia
Financial crisis impacted greatly to major companies in Australia and financial institutions and it also had great impact on the overall economy of Australia.
The government introduced Guarantee Scheme, in its attempt to curb the situation. This scheme promoted the provision of securities for the wholesale and deposits funding to Authorized Deposit-taking Institutions (ADIs). Its major objectives were to contain liquidity crisis and the bankruptcies by providing bank funding as well as to sustain bank lending that could reduce the chance of a credit crunch4.
The reforms covered various areas on top of investmetns and securities and investments. This is clear from the chairman of Australian Securities and Investments Commission (ASIC) who stated, “Regulatory changes from the GFC go beyond securities and investment markets. They cover prudential and risk management practices for the major banks and financial institutions. In Australia, regulation in these areas is primarily a matter for the Reserve Bank of Australia (RBA) and Australian Prudential Regulation Authority (APRA) and Treasury” 5
United Kingdom
There are various causes of financial crisis in the banking sector of the UK. One of the reasons is that the banking system had been taking part in risky ventures. The crisis also led to increase in employment rate in the country. Stock market was also not spared by the crisis. There was also decrease in value of assets which affected mortgage acquisition. The 2000 Act in Finance Services and Markets was used in an attempt to contain the situation. This was well illustrated in the following statement “In the extreme, once a bank’s tangible equity ratio falls to 2% or less, they are considered to be critically undercapitalized and face not only more stringent restrictions on activities than other undercapitalized banks, but also the appointment of a conservator (receiver) within 90 days”6. The government came up with an interim measures through a special provision on Banking Act 2008, which allowed authority to transfer partially or in whole assets, business, and liabilities of deposit takers who had failed to the Bank of England, Commercial equity or Treasury. This provision was to last till 21st Feb 2009. There was also another legislation of banking act 2009 which provided power to the authority to apply special regime for determining the state of the bank performance. This act helped to reduce the effects of the failure of the system and customers
Germany
The crisis impacted greatly on the banking sector of Germany greatly because they were exposed to US structured credit product.
The government came up with a new law in an attempt to curb the situation. In July 2009, the Government enacted German Bad Bank Act which was to serve a purpose of stabilizing the market. This act was established to minimize the private banks' bad assets and to increase confidence for lending. 7.
Brazil
In Brazil the impact of the crisis resulted in reduction in demand for their exported goods and services, constraints in accessing international aid, fluctuation of exchange and decreased investment8.
The government responded to the situation by introducing experimental tax regimes on the short-term capital inflows. “This reduced the confidence of investors on short term capital to prevent negative impact on the economy”9.
Australian Securities and Investments Commission. "Regulatory Response to the Financial Crisis." ASIC, 2009: 1-15.
BroichJosef and Bezzenberger Broich. Symposium on Governmental Assistance for Industries and Businesses. 2009. Retrieved from: http://www.rieti.go.jp/jp/events/09121601/pdf/1-3_E_
Grande, Giuseppe, Levy Aviram, Panetta, Fabio and Zaghini, Andrea. Public Guarantees on bank Bonds: Effectiveness and Distortions. OECD Journal: Financial Market Trends 2(2011):1-25.
Green, Duncan. Latin America and the Global Economic Crisis.Oxfam International, 2009.Web. 29 March 2012. Accessed from: <http://www.ids.ac.uk/files/dmfile/impacteconomiccrisislatinamerica.pdf >
Marshall, John. The Financial Crisis in the US: Key events, Causes and Response. House of Commons Research Paper 09/24, 2009.
Reena, Aggarwal. “The impact of FDICIA and prompt corrective action on bank capital and risk: Estimates using a simultaneous equations model”, Journal of Banking & Finance 25(6) , pp. (2001):1139-1160,
Zimmermann, Hurbert, Eric Helleiner, and Stefano Pagliari. Global Finance in Crisis. The Politics of International Regulatory Change. London: Routledge, 2009.
