It’s been nearly 5 years since we experienced the “Great Recession” and still we struggle to find the answers to stabilize the markets. Since the recession we have experienced stricter bank regulations, continued government spending, high unemployment, struggling homeowners, and consumer confidence is still low.
The crisis was tragic and because of its severity we are still afraid of a second recession. This fear can make it very difficult for our markets and investors to feel whole again. Although, our markets are reaching new highs, the fundamental are questioned.
Does our financial stability depend on new market highs? Hopefully not, since it’s nearly impossible for new market highs to continue all the time. So where does financial stability stem from. Economists and professional opinions differ as to the best way to achieve financial stability. Some think that having a strong and powerful government controlling our markets is good because it provides direction. Some examples are stricter regulation, government support (Bail-outs), government funding, and tax reforms. On the other hand, others believe that government intervention is hurting the natural growth of the economy. Some say that our economy is like a living organism and allowing it to develop and grow on its own may be the best stimulus.
The standard definition of stability reinforces the idea of being constant, reliable, and resistance to change and deterioration. These are all characteristics that if applied and considered appropriately may help our economy reach a place of financial stability.
As we evolve and really take a look at areas of our financial system it will be important to have constant oversight for our global markets. One example of a recent change is the development of a new group, organized in 2009 called the Financial Stability Board. Originally it was the Financial Stability Forum founded in 1999. However, due to the 2008 recession leaders of the G20 countries requested a change to increase the membership to assist in effective oversight and monitoring of the global financial systems. This organization seeks to cover the following areas of the financial system:
• assess vulnerabilities affecting the financial system and identify and oversee action needed to address them;
• promote co-ordination and information exchange among authorities responsible for financial stability;
• monitor and advise on market developments and their implications for regulatory policy;
• advise on and monitor best practice in meeting regulatory standards;
• undertake joint strategic reviews of the policy development work of the international standard setting bodies to ensure their work is timely, coordinated, focused on priorities, and addressing gaps;
• set guidelines for and support the establishment of supervisory colleges;
• manage contingency planning for cross-border crisis management, particularly with respect to systemically important firms; and
• collaborate with the IMF to conduct Early Warning Exercises.
Hopefully with organizations such as these it will help strengthen our oversight and assist us in creating a more stabilized financial system.
Michael Cochell is sssociate vice president of Jacob Gold & Associates Inc. Contact him at 480-998-4653 or by email at mcochell@jacobgold.com.
