Bank Deregulation on US Financial Crisis

Since the beginning of the US financial crisis, I’m not sure what is the real reason behind it until I found this video of msnbc.com by Rachel Maddow Show on a segment called “Cops and Robbers Baron”. She was pointing out the effects of deregulating banks which I found very interesting (Robbers on spaceships and cops on horseback). The two legislation that sets the time bomb of the current economic crisis, one was the “Gramm-Leach-Bliley Financial Services Modernization Act”, enacted November 12, 1999, the other one was “Commodity Futures Modernization Act of 2000,” which is what deregulated Credit Default Swaps. Those two legislation wiped out the legislation passed during the great depression to protect them from, as we see it today, another great depression?

So what is this got to do with the banks here in the Philippines? although the effect of the US financial crisis was global, financial experts here say we are not totally affected. We still have our own economy. And as far as I know we have regulations imposed by the Banko Sentral ng Pilipinas (Central Bank of The Philippines) to avoid credit risks. One good example is the Circular 389 series of 2003.

Subsecs. X320.3 and 4301N.3 Minimum requirements. Before issuing credit cards, banks and/or their subsidiary credit card companies must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling their credit commitments.

A bank should not issue a credit card to someone who is not financially capable. If a card holder was laid-off and was issued another credit card without conducting a credit investigation, then the bank does not comply with the regulation. Indiscriminate approval of loans and credit cards could only mean defaults in the future. Now I ask, do you know banks that don’t follow this regulation? If you know one why do you think they are still in this business and not going bankrupt?

Okay, just watch this video after this jump………