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Weaknesses in the regulatory policy of financial derivatives instruments and their impact on international financial crisis

Author

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  • Jenica POPESCU

    (University of Craiova)

  • Dorina POANTA

    (Financial and Banking University, Bucharest)

Abstract

Since the advent of globalization and the stellar rise of derivatives instruments, there has been a great deal of concern regarding: the heterogeneity of financial supervision in global financial markets; the too rapid pace of growth in derivative instruments and their unknowns; the increasing sophistication and complexity in instrument design and trading, and: the policy of rewarding bank traders and executives by compensation mechanisms encouraging risk-taking at the expense of financial stability. The supervisory authority is charged with assuring safety, stability, and the observance of rules aimed to ascertain that participants are adequately and appropriately behaving as well as protected. In spite of their generous compensation, or because of it, many senior bank executives are falling behind in their knowledge of how their banks deal, or they are even unaware of the risks involved in trading structures created by high-powered trading desks, that are under their watch. Additionally, several board members estimated that the bank‘s clients are being sold financial instruments that they do not understand, and therefore cannot manage. Evidence that a new regulatory system is needed to ensure safe and orderly markets, as well as appropriate use of new financial products.

Suggested Citation

  • Jenica POPESCU & Dorina POANTA, 2009. "Weaknesses in the regulatory policy of financial derivatives instruments and their impact on international financial crisis," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(10), pages 86-91, December.
  • Handle: RePEc:aio:fpvfcf:v:1:y:2009:i:10:p:86-91
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    Keywords

    financial derivatives instruments; regulatory policy; globalisation; real estate crisis;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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