Regulation Reform on the Way: Strengthening the Financial System

Strategic Insights -

Regulation reform is urgently needed to avoid future crises of the magnitude of the current financial crisis. The existing regulatory system has been criticized for its complexity and uneven oversight, allowing financial institutions to shift risky products to less-regulated entities. This has led to the collapse of companies like AIG and has left regulators scrambling to coordinate with other countries to regulate financial giants like Citigroup, Bank of America, and JP Morgan Chase. Additionally, the regulation of OTC derivatives, such as credit default swaps, is long overdue due to the enormous size of the market and the threats they pose to the financial system.

Key Takeaways:

  • The current regulatory system has been criticized for its complexity and uneven oversight, leading to the collapse of companies like AIG.
  • Financial institutions have been able to shift risky products to less-regulated entities, exacerbating the crisis.
  • Consolidated supervision of parent companies and related entities, as well as better coordination among regulators, is necessary to prevent future crises.
  • The regulation of OTC derivatives, such as credit default swaps, is long overdue due to their enormous size and threat to the financial system.
  • Financial giants like Citigroup, Bank of America, and JP Morgan Chase require stronger regulation and coordination with regulators in other countries.
  • Vale's negotiations with Chinese clients over iron ore prices have been ongoing, with the Chinese seeking price cuts of 40-45% and Vale offering 28.8-44.47% cuts to Japanese and Korean clients.

Statistics:

  • Steel production in China in May 2009 reached 46.5 million tons, close to the record level of 46.9 million tons in June 2008.
  • Chinese steel production increased 7% in May from the previous month.
  • Vale's price cuts for Japanese and Korean clients ranged from 28.8-44.47% in address to the ongoing negotiations with Chinese clients.

Sources:

  • Analyst Blog, Zacks.com, "Regulation Reform on the Way We totally agree that the regulation of the financial system urgently needs to be strengthened to avoid any crisis of current magnitude and dimensions in the future."
  • Vale, Zacks.com, "Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter."
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