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Financial Markets and Financial Regulation

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What does Behavioral Finance (BF) have to offer in a debate where the main topic is "Financial Markets" and "Financial Regulations"? Focus both on the micro (individual) behavior and the macro (system-wide/economy-wide) behavior.

A. In favor of the part that favors regulation of financial markets.
B. In opposition to the part that opposes regulation of financial markets.
C. In conclusion - a summary of the key learning points as explained in parts A and B above.

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Part A:
There is strong argument from behavioral finance that there should be regulation of the financial markets. For example, there is a need for regulating derivatives and very high penalty fees for late payment of credit card bills. In fact deregulation is blamed for redistribution of wealth in favor of the wealthy. Regulation of the financial markets by financial institutions, central bank policy, fiscal policy, and banking regulation, is essential for a healthy economy. Consider the example of a person who has defaulted in paying his credit card bills. If the individual is overwhelmed by the high charges levied on him the person cannot repay his debt and may be forced into bankruptcy. This is the situation that is best avoided. Ineffective regulation by the Housing and Urban Development and Department of Treasury is blamed for the housing bubble. From the perspective of regulation, if there is a unified policy all financial regulation can be managed under a single framework. If there is centralized regulation of the financial markets there will be no gaps in coverage or areas of law enforcement. In fact, the lack of regulation or "de-regulation" is blamed for ...

Solution Summary

The response provides you a structured explanation of Behavioral Finance. It also gives you the relevant references.

See Also This Related BrainMass Solution

Australian Financial Regulation

Read the attached article about the 2008 financial crisis and calls for better regulation in "Leaders: What next?"

The article refers to corporate and regulatory failure. It poses the proposition that better regulation is needed but it must be the right regulation. Further, it suggests that too much regulation may inhibit the market and make it less effective.

Consider whether there is a need for any reform of the law relating to the supervision of financial services in Australia and whether too much reliance on regulation is naive?
By following this guideline you will be successful in this task:

Use relevant legal principles, case law and legislation and their application to provide an answer to the problem. Present arguments in a clear, concise and logical manner and that conclusions shall be reached.

Have excellent, concise understanding of the key regulatory issues and laws

Have excellent research that is thoughtfully and logically integrated within the essay. Extensive use of a range of resources.

Demonstrate an excellent understanding and analysis of key policy issues and provided comprehensive and sophisticated critical insights

Have an excellent conclusion which clearly and succinctly explained the chosen outcome

Have an argument that is consistently clear and the essay is well-structured

I have only assigned this task to you and also attached a 'Helpful links' document as well as 3 other documents to assist you.

Thank you, Deepshikha.

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