Analyzing the Effects of Stock Market Deregulation on Investor Confidence
The reduction or elimination of government control in a certain industry is referred to as deregulation. Government agencies typically implement deregulation to increase industry competition. Market conditions have changed as a result of the conflict between proponents of regulation and those who want government non-intervention. In the US, several businesses have been deregulated, including the trucking, railroad, airline, and financial sectors. Deregulation is the process of getting rid of rules and limitations inside an industry. It significantly cuts down on the bureaucracy, which makes doing business for businesses burdensome and oppressive. This is often done at the executive level, which means that a nation’s leader must enact legislation and sign it into effect. However, there is a lot of criticism. Deregulation opponents argue that it could lead to monopolies and a lack of openness in company operations. Removing rules may potentially negatively affect consumers. In the absence of any regulatory framework, businesses are free to take advantage of the interests of customers. For example, financial organizations now have discretion over how to spend their capital and how much to charge customers because of the financial sector’s deregulation.
After reinterpreting the Glass-Steagall Act in 1986, the Federal Reserve determined that investment banking activities could account for up to 5% of a commercial bank’s total revenue. That threshold was increased to 25% in 1996. The Fed decided the next year that underwriting may be done by commercial banks. The Federal Deposit Insurance Act and the Bank Holding Company Act of 1956 were amended in 1994 to provide interstate banking and branching by the Riegle-Neal Interstate Banking and Branching Efficiency Act. Under the Clinton administration, the Glass-Steagall Act was repealed in 1999 with the passage of the Financial Services Modernization Act, also known as the Gramm-Leach-Bliley Act. Credit default swaps and other over-the-counter (OTC) derivative contracts were forbidden from being regulated by the Commodities Futures Trading Commission in 2000 due to the Commodities Futures Modernization Act. The amount of capital required to be held in reserves by investment banks was lowered by modifications implemented by the SEC in 2004. Securities and Exchange Commission. After the subprime mortgage crisis of 2007 and the financial crash of 2008, this wave of deregulation came to an abrupt stop. This was mainly due to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which placed restrictions on the lending of subprime mortgages and the trading of derivatives. The U.S. Securities and Exchange Commission has published a proposed rule titled “17 CFR Parts 229 and 249-Conflict Minerals.” But after Republicans won control of Congress and the presidency in the 2016 U.S. election, then-President Donald Trump and his party decided to repeal Dodd-Frank. A law that Trump signed in May 2018 relaxed regulations designed to prevent the abrupt failure of large banks and exempted small and regional banks from Dodd-Frank’s strictest requirements. After fruitful negotiations with Democrats, it was approved by both houses of Congress with support from both political parties. What is Exponential Moving Average? A technical indicator called an exponential moving average (EMA) is used to monitor a security’s price fluctuations over time.
Trump declared his intention to “do a big number” on Dodd-Frank, potentially even getting rid of it entirely. Nonetheless, former Massachusetts Representative Barney Frank, a co-sponsor of the bill, stated of the proposed legislation, “This is not a ‘big number’ on the bill.” It’s not a big amount. Significant portions of Dodd-Frank’s regulations remained in effect, and the Act made no adjustments to the Consumer Financial Protection Bureau (CFPB), which was established by Dodd-Frank to oversee its regulations. It is envisaged that deregulation will lead to more investment opportunities by removing barriers to entry for new companies and boosting competitiveness. As more businesses enter marketplaces and compete with one another, innovation is encouraged and customers benefit from lower prices. The Airline Deregulation Act, passed by Congress in 1978, altered the aviation industry’s structure and granted airline firms additional authority. The bill made it possible for new airlines, including smaller ones, to enter the market by lifting several limitations. Additionally, it gave airlines more latitude to expand their flight schedule, add more planes to the sky, and carry more people on each trip. Risks would rise for those who used consumer goods that were no longer subject to safety regulations, drove automobiles, consumed food, and took medications. There wouldn’t be any safe spaces or circumstances at work. Employees may be forced to work excessive hours or risk losing their employment if weekends and overtime are eliminated. Rivers and other bodies of water, for instance, have the potential to become extremely contaminated and even catch fire, as they did before the 1970 enactment of the Clean Water and Environmental Protection Act. Growth in the economy can be aided by deregulation. Businesses can operate more efficiently if they are given the freedom to do so. They are not restricted in any way in how they operate their facilities or in the materials they can employ to make their products. Reducing bureaucratic red tape also gives businesses more money to spend on hiring new employees or purchasing new equipment. Additionally, businesses can reduce their fees to draw in more clients. In industries like telecommunications and aviation, deregulation has increased competition and reduced costs for consumers. Deregulation lowers entry barriers as it takes effect. It costs less to join markets for new companies because there are fewer fees and regulatory concerns.
