The Influences of Global Financial Crisis on Financial Markets and Countermeasure Proposals

The global financial crisis caused issues in the U.S. stock market and a liquidity crunch that spread from the United States to other countries globally. The financial disasters have profound implications for the global financial market. Many prior scholars studied how one single factor, such as bank regulations, affected the financial system. This paper uses a broader and more comprehensive perspective to review the implication of the global financial crisis on the financial revolution. It mainly discusses four most prominent changes to the financial system, involving changes in risk management and regulation of banks, regulation of derivatives market, the too-big-to-fail problem, and the credit rating system. Innovative ways to prevent such major failures in the financial system and strategies to better regulate the banking sector will also be discussed. The balance between mandating banks to take reasonable risks and encouraging financial innovations is a key consideration for the future design of regulation system. This paper finds that the insurance requirement on low-risk financial products and increased regulations of the Securities and Exchange Commission (SEC) are indispensable to improving the financial markets worldwide. In order to prevent another global financial crisis, the federal government and financial market should consider establishing independent rating agencies that give transparent evaluations of investment banks and financial products, and they also need to strike a balance between mandating banks to take reasonable risks and encouraging financial innovations. This paper may offer some references for the government to take countermeasures when facing another global financial crisis.