Two Different Regulatory Models That Can Be Adopted In the Financial S Assignment

Two Different Regulatory Models That Can Be Adopted In the Financial Sector - Assignment Example In order to effectively identify the best models to address future financial crises, it is important to go back to the specific cause of the crisis. According to George Soros (2008), â€Å"the salient feature of the current financial crisis is that it was not caused by some external shock†¦ the crisis was generated by the system itself.† Specifically, it was the housing bubble the eventual drove the financial meltdown as excesses became evident when people could borrow money easily to buy houses with inflated prices. Mortgage lenders started to declare bankruptcy and reached crisis proportions, with effects spilling over other markets – from hedge funds to financial institutions. If there is a tight financial regulation in place the housing bubble could not have happened or, at least, the crisis has been confined to the industry. In this regard, two regulatory models are proposed: the centralized financial regulation and supervision used by United Kingdom’s FSA and the Basel II/domestic regulatory model. In the centralized regulatory and supervisory model, all financial policies – for banks, securities firms, other financial institutions, insurance companies, and so on – are under one umbrella. (Schwab, Roubini and Bilodeau, p. 44) The model is seen as a more superior framework than those models wherein powers are fragmented among many and different institutions, as with the case of the model adopted by the US. The recent subprime financial crisis has confirmed the mismatch between regulation and supervision as well as global banking and financial activities. The general consensus today is that it is too late to continue with different national (or state) regulators and supervisors. (Alessandrini, Fratianni and Zazzaro 2009, p. 8) An integrated regulatory agency as proposed by the centralized model would be able to monitor the activities of integrated firms and markets more effectively than separate agencies as well as effectively develop and implement appropriate resp onses to financial threats.