DISCUSSION: Banks are highly interconnected with national economies. This means that they are also highly intertwined with the global economy, a situation that can be attributed to the high rate of globalization. This is where the world has been reduced into a global village. This great interconnectedness between the banks and the world economy can also be demonstrated in the global financial crisis that rocked the world from the year 2007. This crisis started as a severe credit crunch and it almost brought American and European banks to a total collapse1. The causes of the global crisis included a failure in regulation, which could be used to prevent a failure of the banks. It is however, important to point out that regulations have always been in place and it is why it is excusable to side with those who think that regulations have little capability in helping to curb financial crises in the world2. Those with contrary views are said to hold, the too big to fall notion, which connotes the importance of banks in the economy and thus they cannot be allowed to fall. It is this idea that inspired the bailing out of banks during the recent global financial crisis3. Regulations, according to me are important. This is due to the the fact that the economy is a dynamic organism and thus justifying the need to minimize regulations in order not to get in the way of innovation and thus fostering economic growth. Regulations when done right can help to minimize the risks taken by banks, reduce the disruptions that occur after a financial crisis, like the one that occurred in 2007, and also prevent the banks from engaging in improper conduct which in most cases is illegal4. Regulations can also help countries achieve certain policy objective given that they can control the credit allocation procedures in banks by ensuring certain areas of the economy that they deem appropriate are well funded5. Lastly, regulations play the important role of ensuring that customers are not exploited by the banks. This can be through ensuring that banks adhere to their corporate responsibilities. These objectives are what the Financial Services Market Act of 2000 was meant to achieve. The act however received backslash from the public after its provision and the bodies it created failed to prevent or lessen the effects of the global, financial crisis of 2007-2008. This could partly be the reason why people, that are against regulations have the views they hold6. The financial services and markets introduced the (FSA) Financial Services Authority. The establishment of this body marked a radical change in the UKs financial sector laws given that it was allocated massive power. This included the ability to regulate other financial institutions including the insurance companies and securities firms. This was appropriate given that there was a thin line separating these institutions from the bank7. It was also important to protect the clients who dealt with these firms and to protect the market given that the financial sector has become deeply integrated. What the act does, is it provided a statutory framework for regulating the financial sector in the UK. It imposed standards of behaviors that the financial institutions were to adhere to. The diversification of the businesses that were to be regulated by the FSA was one-step to the right direction in helping to stabilize the market. This is because as it has been noted earlier the financial market is deeply integrated and thus maintaining stability would mean having to regulate all the players in this sector8. Among the regulations that can be put in place for the banks include setting up minimum, amounts of capital and liquidity requirements. There is also the need to put in place a centralized trading arrangement for derivative markets as professor Xavier Vives of Public-Private Sector Research Center at IESE Business School notes9. The FSMA 2000 also gave the FSA the powers to seek restitution from the High Court and also to levy fines on those who breached the prescribed code of conduct in the financial sector, this was in the section 118 of the which is the FSMA market abuse regime. The FSA is given express powers to sanction any person that who may engage in misconduct such as improper use of information, manipulation of the market among other misbehaviors10. The UK banking Act of 2009, in its part, sought to strengthen the safeguards of the FSMA, which were deemed inadequate given that they permitted the occurrence of the 2007 financial crisis. This act was specifically supposed to help in minimizing the chances of banks facing difficulties such as the ones experienced during the crisis, protect depositors and also strengthen the bank of England in its role in controlling the financial sector in the UK11. The banking act specifically introduces the Special Resolution Regime (SRR) and the financial services compensation schedule FSCS12. _________________________________________________________________________________________ 1 Vives, X. (2012, March 13). Seven principles for better banking regulation. 2 Freixas, X., & Santomero, A. M. (1999). An Overall Perspective on Banking Regulation. 3 Vives, X. (2012, March 13). Seven principles for better banking regulation. 4 Garonna, P. (2015). The Costs and Benefits of Financial Regulation. Rome: Luiss University Press. 5 gren, A. (2011, February). The Sub?prime Crisis and how it Changed the Past. 6 Avgouleas, E. (2009). Banking Supervision and Special Resolution Regime of the Banking Act 2009: the Unfinished Reform. Capital Markets Law Journal. 7 Danile Nouy. (2016, April 6). Adjusting to new realities banking regulation and supervision in Europe. European Banking Federations SSM Forum. Frankfurt. 8 Taylor, M. (2000, September). Financial Services and Markets Act 2000 – I. Amicus Curiae. 9 Vives, X. (2012, March 13). Seven principles for better banking regulation. 10 Taylor, M. (2000, September). Financial Services and Markets Act 2000 – I. Amicus Curiae. 11 Avgouleas, E. (2009). Banking Supervision and Special Resolution Regime of the Banking Act 2009: the Unfinished Reform. Capital Markets Law Journal. 12 Singh, D. (2011, November 13). The UK Banking Act 2009, Pre-Insolvency and Early Intervention: Policy and Practice. Journal of Business Law.
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