Introduction and problem

Published: 2019-10-28 10:00:00
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The financial shocks that have occurred over time impaired the confidence of both the business and the consumer. The shocks brought in the question of the feasibility of the primary financial institutions. The failure of the financial institutions like large banks led to the financial meltdown then economic downturn (Barth, Brumbaugh, & Yago, 2001). Various measures have been put in place to increase soundness, safety, and stabilize the economy of capital markets to respond to the crisis facing consumers and financial institutions. Besides increasing the confidence of the public in the financial markets, the regulations are set to improve information flow to the financial markets and offer liquidity to the market to enhance market continuity (Jamieson, 2013). However, there has been continued disagreement concerning the influence of the various regulations set in the finance industry.

According to Bebear (2002), the financial markets of the consumers do not operate fairly and efficiently in most cases because there are no effective laws established to ensure that financial institutions are well managed. However, the regulations of the financial institutions are significant because they enhance fairness and effectiveness of the market without imposing unnecessary burdens. This study examines the influence of financial regulations like American Recovery and Reinvestment (ARRA) and Emergency Economic Stabilization Act (EESA) on the savings and loans, insurance companies, commercial banks, and Real Estate Investment Trust (REIT) (Purkayastha, 2014). ARRA and EESA characterize the pieces of regulations in the history of the United States financial industry. Furthermore, the regulators have some implications beyond the provision finance for reorganizing and closing the financial institutions that are insolvent. Changes in regulations that govern deposit insurance for S & L and banks, capital requirements, acquisitions, and merger, and offered services changes the future dimension and structure of the financial industry.

Purpose of study

This study examines the influence of regulators on four types of financial institutions. The paper aims at providing direction and adding value to financial market crisis literature. The study also focuses on the different cross-sectional determinants of odd risk shifts and stock returns for the financial institutions. Furthermore, the study examines the reaction of the market of financial institutions and a change in the risk from the legislation passed by both the government and other institutions. Another purpose of this study is to examine abnormal returns in the financial industry with the focus on the various influences of regulations on the four types financial institutions including savings and loans, banks, REITs, and insurance firms. Moreover, this study analyzes the risk changes resulting from the passage of the regulations for the four financial institutions.

Research questions

What are the impacts of regulations on the four types of financial institutions?

What are some of the abnormal returns for the financial institutions?

How do the regulations affect each of the four types of the financial institution?

How does the market for the financial institutions react to the legislation set by the government and other institutions?

What are the determinants of the odd risk shifts and returns of the financial institutions?

Significance of the study

Conducting this research is significant because it will enable the different types of financial institutions to know the regulations that are affecting the industry. The study is also important because it will enable the customers to know the financial institutions affected by the rules (Bebear, 2002). The research is important as it stakeholders and customers of the four types of financial institutions to know how the regulations affect the industry. Furthermore, the research is important as it helps in regaining the confidence of the public in the financial institutions by enhancing effectiveness and fairness (Barth, Brumbaugh, , & Yago, 2001). It helps the financial market users to know the financial institutions, which they can invest in, and the ones with favorable regulations. This research is important to the citizens of United States because it informs them of the set rules in the different financial institutions.

Research assumptions

The only direct impact of regulators on financial institutions will be accessed for a limited number of regulators. There are only four types of financial institutions covered by the study. The research ignores the other types of financial institutions, which indicates that the implications of the other types of financial institutions are not included. Furthermore, the scope of this research covers only one specific geographical location implying that the results can only be used as a guide, but they are not entirely applicable to the other countries in the world. The study only examines two regulatory acts of financial industries and ignores the other important regulations act are ignored implying that

Study delimitations

The scope of my study will include the financial institutions in the United States. Additionally, the study will only examine the US-based financial institutions. However, the study will exclude the financial institutions and regulators of the other countries. The paper will also consider only two financial regulations including American Recovery and Reinvestment Act (ARRA) and Emergency Economic Stabilization Act (EESA). Other regulatory acts will not be examined in this study. Furthermore, the study will only examine four types of financial institutions including savings and loans, insurance companies, banks, and REITs stockholders returns.

References

Barth, J. R., Brumbaugh, R. D., & Yago, G. (2001). Restructuring regulation and financial institutions. Boston, Mass. [u.a.: Kluwer Acad. Publ.

Bebear, C. (2002). Remarks on the development of global regulation for financial services industries and its impact on insurance. The Geneva Papers on Risk and Insurance. Issues and Practice, 27(1), 46-52

Jamieson, B. (2013). Proposed changes to licensing regulations impact fund managers and financial institutions. Mondaq Business Briefing.

Purkayastha, D. (2014). The impact of regulations on microfinance industry a strategic perspective. The IUP Journal of Business Strategy : IJBS, 11(3), 24-40.

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