August' Essay

TOPIC: Further Strengthen Financial Supervision Is Not Conducive To Economic Development

Lehman's collapse led to the United states subprime mortgage crisis, then caused to the global financial crisis and the world economic bogged down in the mud. United States President Barack Obama win the U.S. presidential election in this environment .His the most important task is to lead the U.S. shake off the shadow of the financial crisis and return to the track of development .Now, one year has passed, Obama delivered his annual State Of the Union address speech to report what he has done over the past year. And i really focus on and interesting in this speech. This speech keep concentrating on economic and employment issues. And a part of his speech is talking about financial supervision. He said he will further strengthen financial supervision and to prevent the financial crisis and the financial crisis infection. But , I challenge that economic measure and query its rationality. I think that measure against the economic laws and impeded economic development .So, my essay will focus on discuss the adverse effects of strengthen financial supervision and the benefits of accordance with economic laws.

Financial liberalization was developing between the Second World War and the 1970s.The development of financial liberalization was improving so rapidly until the system fall down because of too many wrong assessed risk and leverage. So financial sector operates need big adjustment from its supervisor and create a supervisory frameworks which has more powerful. Financial supervision and control be produced at that time. Financial Corporation get too much greater responsibility after financial liberalization. So, supervision need to be “governance" supervisor and intervene under the agreed framework. At that background, "principle" is more important than "rule" Some significant changes in the European financial and led to a legal formalization of the UK financial system, but the foundation of the financial supervision have never been disappeared and resurfaced to guide the financial system by "principle" rather than rules- based system. And other countries also more critical and doubt , towards this British favorite for principles.

I think we should not only build up the principle financial supervision, but also to fusion some rules which is basically and certainly, as author said, the most effective and the best practice financial supervision is a system which have some principle that be supported by a set of prudential rules. However, the financial supervision need more caution to regulate the influence from both of them, as we know, too much rules will lead the market lose its creativity and innovative and it will under control when the environment of financial supervision is too loose as well. How to balance the principle and rule. In my opinion the principle effect the macroeconomic and rules effect the microeconomic .If the financial supervision have correct principles; the rules of that principle won't drift off the course as well. But I also realized success depend on details .The reason why economic growth year by year in that country probably because of some correct rules which have carried out. so ,my view is should balance the influence of finance between principle and rule.

The responsibility of Financial Supervisors is to supervise the work of the organization, which under supervise. And one of the key problem is when and how to intervene in a problem bank. It’s very important, because if supervisors waiting too much time to supervise, the worth of the bank will continue to decrease and lost the chance, which may increase, furthermore, systemic risks may increase. Finally lead to high cost for the government as well as taxpayers. After every financial crisis, the debate about “whether should to strengthen financial supervision” always popular. This discussion is talking about which is the key point for supervisors to intervention in problem banks and to act quickly and decisively, finally to minimize losses to taxpayers and other kinds of people who lose the benefits from crisis. In some debate which about financial supervision; rules are often as the preferred solution, because the crisis of a financial institution stills a complex problem which may interests crash. The rules supervision system in the United States carry out many years and no doubt solve some problem which from problem banks. But the financial crisis still happened again, so more voices are being heard in favor of a principles system, which means cripple the financial supervision propriety. Most European supervisor depend more on principles than rules.

I get a conclusion from this article. Make a clear-cut conclusion about financial supervision is not simple ,even a rules system is clear and able to solve some problems quickly and effective in short-term, but it is also rigid or mechanical. We need depend on new ways, which is more flexible when facing to the financial crisis. So , what is the way which is flexible to solve those problems. I think we let the market take the lead in setting its own parameters while Government intervention is kept to minimum. It is the best way which can solve the financial problem and the effect is very extensive.

Even the financial crisis gradually out of sight, but the effect of the financial crisis still exists. So, how to avoid the next crisis are serious problems we have to face. People always try to find a way which can avoid it after each financial crisis, but always an thankless effort. Obama, which is the president of the United States, and he put forward a policy which to strengthen the financial supervision. Is it really useful for the economy of this country and all over the world? I think it is open to question? In my opinion, strengthen the financial supervision applies only to solve the immediate problem but less far-reaching impact, that’s why the financial crisis always happened intervals. So, keep improving the self adjusting system of the market economy still the most important thing we should to carry out firmly.

reference:
Marc Quintyn,principles versus rules in financial supervision - is there one superior apprach, 2009, http://www.qfinance.com/financial-regulation-best-practice

Marc Quintyn,Rules versus Discretion in Supervisory Interventions in Financial Institutions,http://www.qfinance.com/capital-markets-best-practice/rules-versus-discretion-in-supervisory-interventions-in-financial-in