Financial Regulation in Congress

290 words | 1 page(s)

Reform and change in the financial regulatory system is needed and imperative so that the interests of the American people can be protected and another fiscal crisis such as the one that rocked the U.S. in 2008 and 2009 can be avoided. Since the financial crisis, there has been a rallying cry for big banks, which apparently forms or control about 70 percent of the assets in the banking sector, to be broken up; this is because if there is no one too big a bank, then the financial system cannot be threatened by a single large entity in the event of a calamity.

Further, this implies that, with smaller banks, there is no need for bailouts using tax-payers money. However, according to Douglas Elliott, banks need more capital, some sort of extra funds that would help them in case of calamities; he asserts that, banks must have greater liquidity; have more cash in hand or assets that they can easily convert into cash without making a loss .

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Hypothesis
From Douglas Elliott’s discussion, in order to complete and pass the financial regulations bill, the question that should bother legislators is how to deal with banks, whether big or small, and other non-bank financial institutions. Douglas Elliott suggests that apart from ensuring that banks have more capital, extra funds, cash in hand, greater liquidity, or assets that can be easily liquidated; there also needs to be an enhanced resolution mechanism which would have additional limits on it and be unusual to use .

Two variables that can be used to examine the validity of the hypothesis identified are;
Size of banks
Capital base/Liquidity status of the bank

    References
  • Elliott, D. J. (2010). @ Brookings Podcast: Financial Regulation in Congress. Washington, DC.: The Brookings Institution.

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