Increased regulation

Definition

Increased regulation refers to the process of implementing more stringent rules and oversight aimed at controlling and managing specific industries or economic activities. This often occurs in response to financial crises or failures to protect consumers, maintain stability, and ensure fair practices. As a result, increased regulation seeks to prevent malpractices, enhance transparency, and promote accountability within the affected sectors.

5 Must Know Facts For Your Next Test

1. The savings and loan crisis in the 1980s and early 1990s prompted significant increased regulation of financial institutions to prevent similar failures in the future.
2. Increased regulation after the crisis included more rigorous capital requirements and improved risk management practices for savings and loan associations.
3. The establishment of the Resolution Trust Corporation (RTC) was a direct outcome of increased regulation aimed at managing and disposing of failed thrift institutions.
4. Regulatory agencies gained expanded authority to monitor financial practices closely and enforce compliance with new rules implemented as a result of the crisis.
5. Increased regulation also led to greater consumer protections, ensuring that individuals had recourse against predatory lending and other unfair practices in financial services.

Review Questions

• How did increased regulation following the savings and loan crisis aim to address previous failures in the financial system?
  • Increased regulation aimed to address failures in the financial system by implementing stricter rules governing capital reserves, lending practices, and risk management within savings and loan institutions. This shift sought to restore public trust and stabilize the financial sector after widespread insolvencies. By enhancing oversight from regulatory bodies, the reforms aimed to ensure that such failures would not recur, fostering a safer environment for both consumers and investors.
• Evaluate the effectiveness of increased regulation after the savings and loan crisis in promoting accountability among financial institutions.
  • The effectiveness of increased regulation after the savings and loan crisis can be seen through improved compliance rates and a decline in similar failures among savings and loan institutions. Regulatory bodies gained new powers to enforce rules, which led to better monitoring of financial health. However, while many institutions adapted to the new regulations, some critics argue that a culture of compliance does not necessarily equate to ethical practices, indicating that ongoing vigilance is necessary for true accountability.
• Synthesize how increased regulation post-savings and loan crisis influenced future financial regulations in response to subsequent economic challenges.
  • Increased regulation following the savings and loan crisis laid a foundational framework for future financial reforms by emphasizing consumer protection and risk management as priorities. This regulatory approach influenced subsequent legislation like the Dodd-Frank Act after the 2008 financial crisis, which further expanded oversight of financial markets. The lessons learned from earlier regulatory experiences shaped policies designed to mitigate risks associated with complex financial instruments, thereby reinforcing a culture of accountability across various sectors within the economy.

Related terms

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA): A U.S. law enacted in 1989 aimed at addressing the savings and loan crisis by restructuring the federal regulatory framework for savings and loan associations.

Deregulation: The process of removing government restrictions on industries, often with the intent of promoting competition but sometimes leading to negative consequences when oversight is diminished.

Consumer Financial Protection Bureau (CFPB): A U.S. government agency created in 2010 following the financial crisis, tasked with overseeing financial institutions and protecting consumers from unfair practices.