Regulation Put into Effect After the Crisis

Due to the nature of the risks and rewards associated with the financial industry, the means and methods employed are often scrutinized by different entities to ensure appropriateness and validity. In the event of hardship and when considerable losses are recorded, there is an increased focus on transparency. In other words, decisions and transactions are vetted on an ethical scale, and daily practices are judged accordingly. The GFC of 2008 delivered a measurable loss of confidence and trust in the financial industry. The credibility of respected industry professionals and institutions had deteriorated to unprecedented levels, comparable only to the insecurity experienced during the Great Depression. Most investors, deflated and burdened by tremendous losses, felt betrayed and vulnerable. Nobody knew who to trust anymore. Confronted by the reality of lost livelihoods, many blamed the lack of government regulation and oversight as the vehicle that drove the unparalleled and hazardous path toward financial ruin. However, it is worth noting that while profits ran high, the demands for regulation and oversight were minimal and disregarded in pursuit of ever-increasing returns. The despair of economic uncertainty mobilized legislators to act quickly, swiftly, and with resolve. Lawmakers determined that regulation was needed to prevent similar future recurrences of this magnitude and constituents championed their effort to put in place the appropriate governance. Laws were implemented, and regulators acted upon it. Review and analysis of the actions that led to the near-collapse of the global economy revealed that trusted professionals acted unethically to secure higher returns. Personal interests had repeatedly taken precedence over the greater good, and the result sent lasting and dangerous shockwaves across the globe.
Faced with yet another potentially catastrophic event, President George W. Bush’s administration responded quickly to stem the decline of the impending economic recession in 2008. The United States maintained its standing as a global leader, in part due to the immediate effort of the Bush Administration and the follow-up focus of the Obama Administration that guided the financial cleanup and financial policy reforms needed to mitigate the severe macroeconomic recession that dominated his years in office. Dodd-Frank Wall Street Reform was an important piece of legislation implemented under President Obama’s watch. It addressed, “the financial stability of the United States by improving accountability and transparency in the financial system . . . [and] to protect consumers from abusive financial services practice” (Shu- Acquaye, 2017). The emphasis of “Dodd-Frank” was to establish numerous strict new government agencies tasked with overseeing various banks, credit rating agencies, and mortgage brokers. There were several provisions enacted to help prevent another crisis of such severity. Three major provisions that correlate directly with the unethical decisions made by banks, lenders, and rating agencies were the Financial Stability Oversight Council (FSOC), Consumer Financial Protection Bureau (CFPB), and the Office of Credit Rating.
Prior to the crisis, the regulation in place focused primarily on individual institutions and markets, which over time, allowed for regulatory inconsistencies. Since no specific regulator monitored the overall risk and financial stability, the standards were weakened. Once in place, the Financial Stability Oversight Council, composed of different committees, focuses on specific statutory responsibilities relative to more than one agency. Common initiatives of the committees consist of “information sharing and coordination among the member agencies regarding domestic financial services policy development, rulemaking, examinations, reporting requirements, and enforcement actions. Through this role, “the Council will help reduce gaps and weaknesses within the regulatory structure to promote a safer and more stable system” (About FSOC | U.S. Department of the Treasury, n.d.). Hence, the Council has the right to request information and share the data with other agencies to provide more transparency among all member agencies. Not only the council but, “The Federal Reserve has other discretionary powers under the Dodd-Frank Act as well. It may require additional tests, may develop other analytic techniques to identify risks to the financial stability of the United States, and may require institutions to update their resolution plans as appropriate based on the results of the analyses” (Ryznar et al., 2016). Therefore, both the Council and Federal Reserve can work to keep non-bank financial companies in check since it is widely believed that some of the firms that posed the greatest risk to the financial sector were non-banking related financial companies. The Council is charged with the effort of reaching out to the regulatory agency to create stricter regulatory standards if it suspects that a certain practice is creating a large threat to the financial industry. Overall the responsibilities assigned to the FSOC substantiate the notion that the actions taken by professionals leading up to the 2008 crisis were fueled with unethical decisions shrouded in a veil that lacked transparency and oversight. The FSOC seeks to facilitate a more transparent financial industry that adheres to ethical practices to prevent future devastation of the global economy by overseeing financial products offered to consumers.
Similarly, the CFPB operates with four goals, “The first goal is to prevent financial harm to consumers while promoting good financial practices. The second goal is to empower consumers to live better economic lives. The third goal is to inform the public and policymakers with data- driven analytical insights. The fourth and final goal is to further advance the CFPB’s overall impact by maximizing resource productivity.” (Kenton, n.d.) Ultimately, they want to cultivate an environment where consumers understand what is being offered to them, considering many consumers were unable to understand what was being offered to them during the financial crisis. Their efforts are guided in ensuring that offerings made by lenders, bankers and credit agencies are honest and transparent, to avoid a repeat of offerings lacking in the appropriate advisories needed to warn the public of inherent associated risks (Consumer Financial Protection Bureau 101, 2012). Lastly, The Dodd-Frank Wall Street Reform also created the SEC Office of Credit Rating which focused on administration, “The Office is charged with administering the rules of the Commission with respect to the practices of Nationally Recognized Statistical Rating Organizations (NRSROs) in determining credit ratings for the protection of users of credit ratings and in the public interest; promoting accuracy in credit ratings issued by NRSROs; and working to ensure that credit ratings are not unduly influenced by conflicts of interest and that NRSROs

provide greater transparency and disclosure to investors” ( | About the Office of Credit Ratings, n.d.). Since the regulators thought it was necessary to open an office specific to monitoring and to evaluate the credit rating agencies, it once again highlights the unscrupulous actions taken by trusted longstanding corporate entities who chose to abuse power associated with the respect gained by their predecessors in pursuit of ever-increasing personal gains. It was unfair to the investors that the agencies were providing false ratings to individuals that would rely on their honest evaluations of the securities. As a direct result of their irresponsibility and the global impact of the consequences of their unethical decisions, laws were enacted to ensure compliance requirements, new liability rules, and penalties.
Although the necessary precautions taken under the Dodd-Frank Wall Street Reform were deemed necessary to prevent future recurrences of the 2008 crisis, after winning the 2016
U.S. Presidential Election, President Donald Trump worked to lessen some of the regulations that limited the growth of smaller banks. It was determined that smaller banks were excessively regulated in comparison to their larger competitors, creating a gross inability to allow positive growth for the smaller banking institutions. To enable for correction of disparities, some regulations were appropriately rolled back. Measures were taken by the Trump Administration to maintain regulations that worked to preserve the trust relationship developed as the U.S. economy worked through the Great Recession. Regulations related to large banks and rating agencies were kept, validating that both liberal and conservative principles value integrity and ethical practices in the business environment as a means to serve the greater good. Correcting the wrongs of the unethical corporate practices that resulted in the GFC required varying measures enacted by three consecutive US presidents. No single approach could possibly address the resolution needed. However, collectively the efforts of those with different opinions and opposing political postures helped right an otherwise catastrophic scenario. This reality is reassuring in a world that often cites differences over similarities.

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