Though financial regulations and its implementation have been among the key functions in any economy, It was only after the 2008 financial crisis where regulators took aggressive action towards regulating the financial markets in a more prudent manner. Governments around the world were authorized to make global markets safer by providing transparency of transactions in order to stabilize the financial system. One of the key purposes of establishing financial regulations is to maintain the integrity of the financial system.
We all depend on the financial system-from saving and accessing money, borrowing money to maintain business, taking out mortgage or insurance, to getting claims paid when something goes wrong. When a bank fails due to its inability to meet its obligation towards depositors or other creditors, the effect can spread to the wider economy. Financial regulations aim to enforce applicable laws, prosecute cases of market misconduct, license providers of financial services, protect clients, investigate complaints, and maintain confidence in the financial system.
The Challenge: The prospects for sustaining the global recovery that characterised the year 2021 on the back of unprecedented policy stimulus and rapid pace of vaccinations have been dimmed by the Russia-Ukraine war and synchronized and front-loaded monetary policy tightening in the face of surging global inflation. With persisting concerns about the near-term inflation outlook, amplified market volatility is raising financial stability risks.
During these difficult times, higher capital and liquidity buffers have helped banks and financial institutions to remain resilient and stable. Nonetheless, fears of a hard landing have increased worldwide. For emerging market economies, these factors have translated into surges in capital outflows, sharp depreciation of exchange rates, loss of reserves and darkening macroeconomic prospects.
This story is from the May 2023 edition of BANKING FINANCE.
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This story is from the May 2023 edition of BANKING FINANCE.
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