Question

Give 3 simple examples: making use of formal economic theory to analysis asymmetric information and/or incomplete contracts in how financial regulation could help avoid another Global Financial Crisis

Answer 1

1) If there are correct regulations which federal reserve bank have followed before 2007 would not have resulted in the depression during that period. Due to Mortgage loan the 2007 crisis started which lead to the Great depression , so Federal bank should atleast now keep track on how banks are working.

2) If Federal reserve have been strict enough in practicing the policies rather than going with the consent of Politicians will also avoid financial crisis. Mostly these policy makers will only go ahead with what government rather than what is good for the economy. Hence if it is regulated than Global crisis will not take place.

3) Government should regulate how banks are utilising money and investing that money because there are many instances even large bank facing crisis lead to economic crisis.

So if these type of regulation are followed than there will be no more crisis.