Scientific Center of Innovative Researches, International Conference on Corporation Management-2022

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EXPERIENCE OF THE LEGAL REGULATION OF THE FINANCIAL SAFETY
Natalia Mykhalitska, Mariana Veresklia


Abstract


The issue of legal regulation of the financial and economic safety at all levels of the Ukrainian economy is very topical. Practical experience of the legal regulation of financial safety in the USA will allow demonstrating the theoretical frameworks concerning the solution of this problem.

The financial system of the United States is a network facilitating the exchange between creditors and borrowers. According to the Federal Reserve System, the financial regulation is aimed at the following two tasks: to provide for the security and reliability of the financial system and provide for the implementation of regulations aimed at consumers protection. The regulatory and legal base varies in different spheres, at the same time, different regulations apply to different financial services [1]. Separate federal and national institutions have different and sometimes even overlapping obligations within the regulation system.

After the Great Depression, the world economic depression of the 1930s, the US Government passed the Glass-Steagall act that constituted the extension of the role of the Federal Government in the regulation of the financial sector. The Glass-Steagall Act is believed to create the feeling of liability for the investors in the sphere of financial management forcing them (in fact) to avoid the transactions of the excessive risk that may cause the financial default. It enabled the legal entities to verify the lawsuits against such substandard investment tools on behalf of their clients affected by such breach of justice.

Starting from the 1980s, Congress discussed the bills to repeal the Glass-Steagall Act (Sections 20 and 32). To repeal them in 1999, Congress passed the Gramm-Leach-Bliley Act also known as the Financial Modernization Act of 1999.

After the financial crisis in 2007-2008, Joseph Stiglitz, the Economics Nobel Laureate, stated that when the appeal of the Glass-Steagall Act united the investment and commercial banks, the culture of the investment banks came to the fore and the banks that were conservatively managed in the past engaged in more risky investments to improve their profitability. The other Laureate, Paul Krugman, stated that the repeal of the law “was a real mistake”; however, it was not the reason for the financial crisis [3].

In 2009, Barney Frank, member of the Chamber of Representatives, and Chris Dodd, the Senator, elaborated the bill on the financial regulation known as the Dodd-Frank Act that was introduced to the Chamber of Representatives of the United States in December 2009 and was brought into action the next year. According to the Committee on Financial Services of the Chamber of Representatives of the United States, Dodd-Frank created 400 new financial rules [2]. Besides, the Act created four new federal agencies: Consumer Financial Protection Bureau (CFPB), Office of Financial Research (OFR), Federal Insurance Office (FIO), and Financial Stability Oversight Council (FSOC) [1].

Thus, the experience of the legal regulation of the financial safety in the USA confirms that the groundless downturn in the state control over the market relations in the sphere of finance can cause the economic crisis, production decline, and growth of unemployment. On the other side, the excessive legal regulation of the financial relations in the market economy can harm the investment environment and cause the production decline. Therefore, from the practical point of view, the art of the legal regulation of processes influencing financial safety and relying upon the progressive theory of law is necessary.


Keywords


financial safety; economic safety; legal regulation

References


  1. Federal financial regulation in the United States. URL: https://ballotpedia.org/Federal_financial_regulation_in_the_United_States
  2. Capitalistic fools. URL: https://www.vanityfair.com/news/2009/01/stiglitz200901-2
  3. Democrats, Republicans and Wall Street Tycoons. URL: https://www.nytimes.com/2015/10/16/opinion/democrats-republicans-and-wall-street-tycoons.html
  4. Iryna Mihus, Mykola Denysenko, Igor Rumyk, Svetlana Pletenetska, Mykhailo Laptiev, Vasyl Kupriichuk. Methodology of corporate financial diagnostics in the period of a crisis. Ad alta-journal of interdisciplinary research. URL: http://www.magnanimitas.cz/ADALTA/110115/papers/A_13.pdf