Compliance - International Regulatory - Coursework Example

Compliance: International Regulatory

Globalization for about two decades produced incredible economic risk levels and growth of the economy as well. There was opening of the financial markets that enabled the government and companies to make more investments in a better way. The global finance became now complex apart from just growing bigger (Claessens and Kodres 2014). The flow of capital was unpredictable, and this made it difficult to track the economic risk.

Domestic regulators were in the great struggle to keep pace the financial practices that were evolving, and which they could not understand. Further, to escalate the situation many of national governments denied global institutions the regulatory authority, and this limited world markets international oversight. The international cooperation also was with little power and as a result of all these banking crises arose. In 2008, this crisis made some policy makers begin to express their anxiety over the lack of adequate global financial system regulation (Claessens and Kodres 2014).

The world's developed markets went into recession after the subsequent financial crisis of 2008 that affected the whole system. This and the current financial crisis calls for a better and effective financial regulatory regime in the world. International Monetary Fund that is IMF and Group of Twenty in the year 2010 agreed on steps that would lead to reforms of international regulations and support for liquidity. However, Group of Twenty has been slow in realizing the steps in the agreement.

The international financial regime is faced with to challenges that make it unable to handle the situation. One of them is the availability of many mechanisms and institutions with limited power and overlapping mandates (Claessens and Kodres 2014). The other is the inability of the cooperation machinery to build critical agreements. Whenever states see a conflict that affects their direct national interest, they disagree on important issues in most times preventing the cooperative regulation objective to change the international system (Claessens and Kodres 2014).

Financial crisis is associated with improper international rules of the market. Here I address the regulatory initiatives undertaken to counter this kind of risk and its impact. I will begin by focusing on the significant international regulatory developments, current regulatory trends emerging internationally, existing regulatory regime pattern and the regulatory risks and how they are being addressed.

For the last decades of globalization and incredible growth of the economy, crises often affected the broadening of the world finance, coercing international communities to establish methods that are capable of mitigating or preventing them. The IMF together with the Group of Twenty made provision of a world economic leader’s forum to address this crisis. Achieving an agreement on effective collective responses, however, has always been difficult (Claessens and Kodres 2014).

IMF on its part provided emergency financing to the hurt economies especially the developing nations, by way of lending out money to them which was their final resort. Apart from these funds being financial assistance, it also was used to promote structural policy changes formed to reduce the economic role of the state and broaden free markets (Claessens and Kodres 2014).

The recession of the global economy and later the crisis of euro zone, however, saw IMF take up a new role in nations of developed economy. Though the IMF was a central figure in responding to the crises, governments resisted giving a lot of power particularly ‘regulatory power’ to global institutions of a similar nature and the fund. The regulation was only national. Sometimes, though, states coordinated their federal regulations so to avoid competition (Claessens and Kodres 2014).

The new set of regulations on Banking Supervision by Committee of Basel in September 2010 was one of such initiative. It was called the rules of Basel III. The laws were made to reshape the national systems of finances via strictly controlling the need for adequate capital and liquidity. However, the regulations have not all been implemented (Claessens and Kodres 2014).

The IMF and the World Bank have attempted to protect the position of underdeveloped nations in the process of policy making. These institutions have endorsed reforms intended to increase the power of voting and to influence the developing economies. However, this has been done on a limited scale. Looking at the recent efforts, in the international financial institutions to reform shares it has indeed progressed in a slow manner.

Even if the alterations had occurred, traditional advanced economies voting stock would only lower by about 2.6 percent. World Bank issued governance reforms proposals contained in the external review of October 2009, which increased developing country’s voting shares and countries among its different groups. International Bank for Reconstruction and Development raised by 3 percent its voting shares.

On the other hand, the corporation of International Finance and the international development association increased the proportion of voting of the future states by 6 percent approximately. Although this reform that favors the developing nations have a vast international support, the main aim is to have a representation that is proportional (Claessens and Kodres 2014).

It is important to note that, economies that are advanced are yet to agree entirely on an appropriate crisis response. Some are of the view that international institutions require more power to enable them to control the global markets. For others, providing emergency insurance could lower incentives for countries and investors to allow them to avoid the crisis. Instead of relying on global institutions, some economies usually trust in national self-help, in some cases limiting the capital flows and creating vast reserves.

In the existing financial regime in the world, the world has been unable to manage successfully fiscal crises around it, yet it has found itself prone to severe financial crises. Apparently, the International Monetary Fund is the chief controller of these circumstances. It is also responsible for mitigating the economic tensions that emerge after the financial crisis. This notwithstanding, states have made their arrays of multilateral and bilateral arrangements to assist in cautioning against financial crisis.

The extreme unpredictability of flow of finances has become the reflection of the world economy. A few countries for instance quickly lose access to financing market and discover that it is impossible for them to fund significant deficits (Claessens and Kodres 2014). Similarly, short-term funding for financial institutions can be exhausted as well very fast. Whether they are investment vehicles for a short term, united states dealers that highly look up on repo market to get money from funds in the market or the banks of Europe that depend on the market of wholesale (Claessens and Kodres 2014).

At the beginning of the world fiscal crisis, the dependence of banks of Iceland on borrowing in foreign currency took the nation’s total economic status into trouble immediately when the European markets started to destabilize. Weak and strong investments are affected in the same way. When investors confuse proper investments with improper investments financial organizations can lack confidence in each other and their short-term borrowing systems.

When developed states needed support during the previous financial crisis, the IMF managed to obtain experience and the last resort lending facilities. Due to the vast learning from the developing global currency crisis of the 20th century, IMF came up with the establishment of liquidity of short-term in the year 2008 to better capital administration into reasonably stable financial systems.

Also, in the year 2010, the Central Bank of Europe and IMF passed a sum of 930 billion U.S dollars to stabilize euro zone nations. December 2011, the euro zone for another time sought the IMF help to make a fresh giant finance bailout of 260 billion dollars, and upon Britain refusing to contribute, IMF and the European Union fund set aside 200 billion dollars only.

IMF gives its loans with several conditions, which in most cases impose financial austerity on societies affected by the crisis(Claessens and Kodres 2014). With many in the world that are developing regarding IMF as long as the tool for industrialised states to rule over the developing countries. The euro zone funds have elicited in Europe resentments as well. Some parts of Europe perceive IMF as wicked because of its demand for austerity. Moreover, on the other hand, critics questions the IMF discretionary interventions power as it does not have a clear set standard of determining how many nations should get (Claessens and Kodres 2014).

IMF promotes pursuing of reckless policies by investors and government since they know it is possible to receive loans from it when investments fall as some economists suggest. Different from national lenders who acted as the last resort, IMF capacity of lending is limited by contributions of the donor unforeseeable on the process if internal voting and feasibility of giving new special drawing rights.

To end fears that the 2008 aftermath of lending would finish the IMF resources, the Group of Twenty and other upcoming economies in the market conceded to broaden the new plans to Borrow. This gave the IMF about 500 billion dollars as additional fund 2011 March (Claessens and Kodres 2014). The IMF members also, passed rights allocations that increased the IMF global reserve that enabled it to give each member some additional reserves proportional to its contribution to IMF (Claessens and Kodres 2014).

However, the spending on euro zone by IMF and the county’s failure to match the cash commitments has made the IMF unable to attain the objective. World finance ministers agreed to increase the power of IMF to lend money by 430 billion dollars at a meeting held in 2012 between the IMF and the Central Bank. However, it is questionable whether this amount is enough to contain the crisis (Claessens and Kodres 2014).

Emerging countries are vulnerable to negative overflow impacts of the crises that culminate into a lot of poverty, food shortages and mass unemployment. In past years, development agencies and IMF have changed their policies to stabilize the financial sector and its growth as well as encourage commercial activities via programs if incentives. However, the need for aid in countries that are developing remains necessary (Claessens and Kodres 2014).

Efforts multilateral to solve the requirements of the developing territories began back 1945 when Bretton Woods system architect created the Bank of the world to give support to the after-war reconstruction. Many controls of capital were destroyed, and private fiscal markets arose as a long-term financing source alternative. However, countries with necessary banking and financial infrastructure or governments that are unstable continued to struggle to attract investments from the private sector on unknown terms.

Meanwhile, the fears that failure of development may affect the neighbouring nations created the need for support of multilateral events. In its subsequent endeavour, the bank in a big way focused on assisting the weak global economies by began by setting up an association of International Developments that was otherwise referred to as the window of soft loans. This was to finance developing states (Claessens and Kodres 2014).

Nowadays, World Bank proceeds to grant the middle-income nations loans, which have private markets access. The loans are commercially given a price so that it can give the profit to the World Bank. This profit is in turn, used to offer help to countries that are not developed. Also, the bank has changed to a knowledge centre apart from being a financial intermediary. It spreads experienced lessons that are learned from its experience program maintenance in some countries from various programs encompassing its paper on poverty reduction strategy. Regional Development Banks also has embraced similar goals (Claessens and Kodres 2014).

States also give as donor nations and have assisted in supporting goals of development in emerging economies. Nevertheless often bilateral official development assistance suffers the lack of host country ownership and lack of harmonization (Claessens and Kodres 2014). Apart from increasing funding levels in the past few years, growing number of participants ranging from nongovernmental organization to donor states as well as other foundations has largely increased the diversity of sources of project development finances (Claessens and Kodres 2014).

Additionally, corruption in developing countries, as well as weak capacity mostly, causes ineffective implementation and wastage of resources. These difficulties make it challenging to effect success in these nations. In the past few years, the developing countries obtained another financing support.

Firms from Europe, Asia and Middle East that were government supported made several investments. It is these investments and other new private investments fields of oil and mines that increased loans and investments in Africa from 9 billion dollars in the year 2000 to 62 billion dollars in the year 2008. These investors issued the governments a chance to step aside the requirement of transparency, performance monitoring and rules of governance attached to development bank loans or ministries from the western nations.

The Group of Twenty formally also introduced some events as a critical issue of its agenda in the year 2011 the month of November. The final official announcement conceded not to restrict or even tax foods meant for the Food program by the United Nations. It also created a task force to handle unemployment of the youth, as well as outline steps to increase agricultural output in the world. However, in the year 2009, the assistance of development from the developed countries for the first time decreased.

Development efforts still are yet to fulfil the outlined commitments by the World Summit in 2005. National financial policies in middle and low-income countries needed to transform to very countercyclical with an aim of addressing the vulnerable system of their markets of the domestic capital. Just as previously seen, the IMF, new financial institutions and development banks will take an important step in ensuring that these economies do not contract during the time of financial crises.

Emergencies arise partially because of lack of regulatory overseers in the market. To preclude their happening, the world should implement and invent the new set of enforcement and monitoring procedures. After the financial crises of 2008, which hit the economy, the board of financial stability produced a print out on the global reforms. Group of Twenty leaders in June of 2010 promised to look for better-regulated financial systems founded on four fundamental pillars.

These included a framework of regulations that was active as well as adequate supervision that addressed the problems of the system. This involved critical relations of the organizations and review of the peer and transparent international assessments (Claessens and Kodres 2014). The Financial Stability Board is currently monitoring the Group of Twenty recommendations implementation to increase the financial stability and assess that there is the progress of these efforts. In the year 2010 around September, twenty-seven nations financial authorities in the same way composed new laws that were known as Basel III regulations so that to demand big holding of small capital risk reserves. This assisted in lowering the systematic risk (Claessens and Kodres 2014).

Nevertheless, nations as individuals are responsible for the compliance and implementation of these points to ensure adequate regulation of the currency. Little progress was made in better compliance with regulations of Basel III in the Group of Twenty summit held at Los Cabos in June 2012. In the same year, the month of December, it was apparently clear that the compliance with these regulations would be delayed further in the United States while Europe feared that their implementation would prevent growth.

More restrictions, as well as interference by the government also, can contribute a slow recovery of the economy by killing the dynamic creative market. When the government decides to interfere primarily, politicians and makers of policies in the government will be tempted to destroy resource allocation and pursue their agendas via the regulations they put in place (Claessens and Kodres 2014).

This means that the recession that was unbearable should not force us to forget the immediate results of the last two decades. Encouraging financial innovations would even be far expensive compared to the fiscal crises. The rest suggests that the system needs to be made safe for failure allowing markets rather than regulating institutions that are huge to fail and encourage regulators to keep discipline for the systems of finances.

To the rest, they are worried that these reforms will gather a lot of power and authority in the hands of some regulators, for example, Federal Reserve and not remove the capture regulatory risk. Besides, giving other new mandates to subsisting organizations can attract attention and energy from traditional responsibilities. Such ideas, as a result, limit Federal Reserve responsibility to supervise.

Most analysts concede that what caused the financial crisis recently was the global imbalances that have taken place since the 20th century. The need for rebalancing solutions becomes more important as the current discrepancies account between the importing countries and exporting nations widen more and more.

Proponents of the world-rebalancing endeavor felt that significant changes of structure needed to be made to solve such imbalance. Many countries, in particular, Germany and China are supposed to save less and encourage their demand domestically, while the United States should keep more and add on the exports role in her economy. Global Trade imbalance trend corrections since the year 2008 depended on unsustainably large financial economy and which reversed later (Claessens and Kodres 2014).

On the other hand, critics claim that corrections of the globe are in the process of implementation and that the market tends to move towards equilibrium naturally. The crises in 2008 have caused lowering of the global demand, resulting in the decline of trade deficit of the United States, which is a U.S rate of exchange collection, and the high level of saving among U.S. households (Claessens and Kodres 2014).

Also, countries, if they were to look for policies that are coordinated to handle imbalances in the world, who would be given the task to spearhead these efforts, is the question that is yet to get an answer. The Group of Twenty inadequately has handled concerns as well as the Los Cabos summit of recent time with, Mexico representing ongoing non-achievements in these efforts. A few typically believe that institution that is informal may similarly be immense to prescribe agreements founded on the rebalancing of world policies.

The year 2014 global growth predictions by Independent Monetary Fund was reviewed in the upwards direction from 0.1 percent in January to 3.7 percent. The shift in the past few years has caused a stronger performance of the economies that are advanced while the emerging markets are increasing the world growth.

The rates of the mode of growth for many of the developing universe can even further slow down when it comes to responding to the United States economy improvements as monetary policies which are a bit tight would redirect to the United States market the flows of capital. Several currents developments have been made to prevent such a crises from reoccurring (Claessens and Kodres 2014).

The Doha round moribund trade round finally was ended in Indonesia in a place called Bali. The plan made in Bali focuses on facilitation of commerce, solving inefficiencies in procedures of customs (Claessens and Kodres 2014). The consensus, however, failed to explain many other long-standing points of contention on the World Trade Organization member states. Also, it is not decisively likely to shift the landscape of the international trade for agreements of multilateral nature, away from popular increasing many contracts plus the agreements of bilateral character (Claessens and Kodres 2014).

The twentieth summit by the eighth group was held in Russia a place called St. Petersburg, from 5th September to 6th September. Unfortunately, fears over the response by the international community to the disagreement that were in Syria precluded the remarkable success of the economic agenda. The document was indicating the results from the Summit never pointed out the critical steps on more crucial issues such as regulatory challenges that remained but did encompass an extensive commitment to desist from measures of protectionists and agreement points on handling the problem of tax refuge (Claessens and Kodres 2014).

The industrial average of Jones Dow increased above fifteen thousand points for the first time on 7th May. Low-interest rates, considerable Central Banks easing and the positive figures recently associated with productivity and unemployment have all contributed to the high record. Still it is not clear whether the habit will go on or whether it is a clear reflection that this marks the global financial crises cessation. However, it represents a significant index expansion to 7, 000 points in the year 2009 from when the crisis started.

Officials of global finance embraced the target of the World Bank to eradicate high poverty at the International Monetary Fund and the World Bank occasional meetings by the year 2030. The primary purpose is to ensure that only 3 percent of the population in the world are categorised as being living in acute poverty. This creates strategies of reduction of poverty to cater for about 40 percent of the individuals in each state in the developing countries (Claessens and Kodres 2014).

This objective was set up centrally to the background of statistics that on extreme poverty suggested that it lowered from 43 percent in 1990 to 21 percent in 2010. Discussions recently suggest that environmental protection and climate change concerns are crucial to achieving 3 percent poverty level goal by the year 2030. This endeavour most probably coincides with the effort of United Nations to establish a development framework of the post the year 2015 to replace the set millennium development goals (Claessens and Kodres 2014).

United States legislators refused to make plans to prevent exceeded cuts of the budget of the spending of the United States government discretion. These reductions on programs of defence, programmes of research and education happened regardless of the warning that they would affect international markets as well as domestic markets and other small developments making up the total domestic production by about half of the rating. These reductions are still moving and with a lot of force and they are not anticipated to take a stop until probably later sometimes (Claessens and Kodres 2014).

By the Japanese Yen losing its value, there arose anxiety of a crisis of currency in the industrialized and industrialized nations. New monetary and fiscal policies apparently existing in Japan aimed at the lower rate of exchange to reinvigorate the stagnant economy. It was a development that coincided with the development of adding strength to the Euro which brought a long recovery jeopardy of about six months (Claessens and Kodres 2014).

The currency crisis probability of happening to the Group of Twenty members resulted in the anxiety of high protection that would significantly affect the architecture of an international financial system that was formed after the fiscal crisis occurred.

These concerns prevented the Central Bank governors and the February Group of Twenty ministers of finance meeting. It is at this meeting that the group however clearly asserted that they would not lose the value of their currency while trying to look for better-improved trade balances (Claessens and Kodres 2014).

In conclusion, Regulatory standards should be enhanced to mitigate fiscal risks. Policymakers and other experts have blamed weak regulatory standards as well as inadequate supervision of sophisticated financial activities as the cause of financial crises. Although considerable progress has been achieved, especially via the establishment of oversight council of financial stability in the United States and Europe, the systematic European risk board was also formed. The integrated element of current finance and complexity persists as an unpredictable challenge. Acting to the crisis, the Board of financial stability has made provision of a couple of proposals to ensure restoration of trust and confidence in institutions and soundness of the markets.