Financial Deregulation

Paper Summary:

The paper explains that deregulation is the process of removing restrictions on prices, products and entry conditions. The paper discusses how regulation hinders competition and causes inefficiencies, while the removal of these regulations, deregulation, can increase market efficiency. The paper shows why deregulation of financial institutions is necessary. The paper includes graphs and tables.

From the Paper:

"Deregulation is the process of removing restrictions on prices, products and entry conditions. During the past 20 years, deregulation has occurred in domestic air transportation, telephone service, interstate transport, and banking and financial services. Before deregulation, the government influenced the economic activity by determining prices, product standards and types. This was seen as a major disadvantage to the businesses as they had no control over the pricing of their products and thus competition was eliminated because the same product a business was selling was marked down as the same price. There are two types of regulations which are the rate of return regulation and Price Cap regulation. The rate of return regulation sets the price at a level that enables a regulated firm to earn a specified target percent return on its capital which means the profit earnt is fixed. Price Cap regulation is the recent replacement for the rate of return regulation as this type of regulation acts as a price ceiling that specifies the highest price that a firm is permitted to set. This is a small benefit for businesses as they have increased control over their pricing methods but still have a limit."

Sample of Sources Used:

• Paavo Okko, Mika Maliranta, 2006, Deregulation as a means to Increase Competition and Productivit, Research Institute of the Finnish Economy, Finnish, http://www.etla.fi/files/1522_Dp1014.pdf, [Accessed on 14/08/07]
• Macfarlane I.J, 1995, Financial Deregulation and Financial Markets, Reserve Bank of Australia, 12/08/07, http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_may95/bu_0595_2.pdf [Accessed on 12/08/07]
• Johnson Peter, 1996, Financial Deregulation-The Scorecard, The Committee for Economic Development (CEDA),http://melbourneinstitute.com/people/pjonson/financialdeg.pdf [Accessed on 13/08/07]
• Organisational Models for Sovereign Debt Management, http://www.aofm.gov.au/content/publications/speeches/1999-11-01-1/OrganisationModelsForSovereignDebtManagement.asp, [Accessed on 15/08/07]
• Harrison Barry, Smith Charles (1992), Introductory Economics, Hampshire London, Macmillan Press

More papers on Financial Deregulation:

• Research Paper # 56032 : "Risk Management and Financial Risks"
• Essay # 60201 : "The Deregulation of Australian Financial Systems"
• Persuasive Essay # 142940 : "Financial Greed and Governmental Deregulation"

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