Answering questions Assignment Example | Topics and Well Written Essays - 250 words

Answering questions - Assignment Example 2. Using the collapse of the subprime mortgage market in the U.S., describe the components of good management and how regulation can contribute to prudent lending or encourage excessive risk taking. (What forms of discrimination are to be encouraged.) The subprime mortgage crisis in the U.S. has revealed various imperfections in the financial system. This collapse happened when most of the borrowers over-reached their demand for big homes and a number of borrowers availed the loan offers without having a suitable understanding to the implications of terms and results in an environment of declining real estate prices and increasing interest rates. Regulations can play a very significant role in ensuring stability in finance system by covering the safety and reliability of depository institutions and by maintaining a capital adequacy. In other words, a suitable regulated housing finance system is less vulnerable to institution failure. The less vulnerability may increase the confidence of investors in the system thereby, encouraging them to take risks. Moreover, the regulations and law should intend to reduce discriminations in house financing. For example, in the mortgage crisis institutions traded and resold the subprime mortgages in the secondary securitization market which made it hard for the regulators and homeowners to follow the predatory lenders.