Regulating the Financial Sector is Beneficial to Stakeholders Across the Board

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Regulating the Financial Sector is Beneficial to Stakeholders Across the Board

Table of Contents

Introduction
Regulations are Beneficial to Business Organizations
Regulations are Good for the Economy
Conclusion
References
Footnotes

Introduction

Economic instabilities such as the Great Recession of 2008 are as a result of weakened regulations. As from the mid-2000s, for instance, lenders expanded the meaning of credit-worthiness and started to extend mortgages even to buyers who had poor credit histories (Truby, Brown, & Dahdal 2020). A significant number of them could not have qualified for loans prior to that period. The failure to enforce the restraints is what led to a crisis that caused a serious economic derailment. The problem could have been avoided if there were limitations on financial transactions. In that case, the sector should be controlled as the imposition of rules protects stakeholders across the board.

Regulations are Beneficial to Business Organizations

It is highly unlikely that any financial institution or system would exist without some controls. Banks, for example, do actually regulate themselves in addition to meeting the rules imposed by the authorities (Hearit, 2018). They, therefore, appreciate the fact that without constraints, their sustainability would be imperiled.¹ In essence, the internal stakeholders ought to know what they are allowed to do as well as the limits which they must not cross. Crises are avoidable, and what is required is for the government to institute a few mitigating steps.

Increasing the level of regulation is synonymous to improving transparency. Without rules, firms would not maintain their integrity as far as their interaction with external stakeholders is concerned.² In the wake of the crisis of 2008, several measures were taken to compel banks to inform the public of their practices (Truby et al., 2020). This is important considering that the failure they caused affected the external stakeholders in a significant manner. Transparency is an important aspect of demonstrating a sense of responsibility, and hence the government should continue revising the rules to match the emergent trends.

Regulations are Good for the Economy

While the opponents of regulations argue that such measures would cause a nation to lose investments, this does not seem to be the case. No developed economy is without some form of control on its financial sector (Hearit, 2018). Considering that these jurisdictions are successful largely due to the activities of entrepreneurs and business organizations (Truby et al., 2020), it is apparent that rules do not inhibit economic growth.³ Restrictions do not necessarily trigger a flow of monetary resources into other countries.⁴

In fact, there is yet another benefit of having rules in place. Failure to limit the activities of financial institutions leads to the inability to stop the emergence of monopolies (Hearit, 2018).⁵ If a player or a small group of firms gained the exclusive control of the sector, that would be highly disadvantageous. They could start charging astronomically high levels interest, and hence threaten the stability of the entire economy.

Conclusion

It is to the benefit of every category of stakeholders to have the financial sector adequately controlled. While it is true that some of the requirements of regulators may conflict, the solution to such a problem is not to do away with rules. Besides, we can still have a significant number of them which are consistent.⁶ Stakeholders with a positive mindset are more successful in their endeavors than the pessimistic ones. Those with an interest in the performance of banks should rather be optimistic as that is the only way they can overcome any stumbling blocks.

References

Hearit, L. B. (2018). JPMorgan Chase, Bank of America, Wells Fargo, and the Financial Crisis of 2008. International Journal of Business Communication, 55(2), 237260.

Truby, J., Brown, R., & Dahdal, A. (2020). Banking on AI: Mandating a proactive approach to AI regulation in the financial sector. Law & Financial Markets Review, 14(2), 110120.

Footnotes

Conditionally valid syllogism.
Obversion.
Unconditionally valid syllogism.
Contradictory.
The traditional square of opposition.
Conversion.

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