how to prevent financial crisis?

How to prevent financial crisis? : 

How to prevent financial crisis? Davood BAYRAMI Mojtaba JEBREILI Anooshiravan MERAT Mohammad R. ZAHIREMAMI Nice Sophia Antipolis University- DBA Program International Business Environment Course July 2010

World’s important financial crisis : 

World’s important financial crisis 2 Worlds big crisis of 1929 Over investment and economic bubble Under consumption Over indebtedness as a result of loose credit Recent big crisis of 2007-2010 High loans with easy credit conditions Deregulation Over leveraging Lack of accounting standards Lack of clarity Collapse of shadow banking system

Some reasons of crisis : 

Lack of sufficient control by governments and international monetary organizations Lack of financial clarity Ease of uncontrolled mobility of capitals High rate of capitalism Some reasons of crisis 3

Players : 

States Banks Private sector People(consumers) Players 4

States : 

States 5 Market: Governments should work with, not against, market forces. Market transparency and in the assets that are being traded. Market participants should be given thorough understanding of hybrid securities and their associated risks. Encouraging more national saving.

States : 

States 6 Regulation: Ensuring financial product safety system. Preventing money laundering. All financial transactions should either pass through organized exchanges, or be subject to some sort of strict reporting requirements to regulators. Preventing the private sector from resorting to the public sector to resolve their problems Promoting and monitoring international monetary cooperation before any crises take place. Creating distinction between monetary policies and fiscal policies, taxation policies and for spending policies. Taxpayers should not be required to bear any cost of a financial meltdown.

States : 

States 7 Banking: Develop and ensure higher accountability standards. Sticking to the budget. Improving the allocation of credit by increasing capital requirements for high-risk banks and lowering requirements for low-risk banks. Need to make sure that financial firms are not too big or too small to fail. Having the plans and the legal authority in place to deal with insolvent financial institutions. Not only the traditional but also investment banks must be subjected to regulations

Banks : 

Preventing CDS(Credit default swaps) Increase diligence on credit and loans Increasing percent of bank legal reserves Specializing the banks (investments and commercial) due to the risk control Logical competition on clear platform Reduction of costs Banks 8

Private sectors : 

Modifying incentives for executives to: Encourage long term focus rather than short term Discourage excessive risk taking Reduce conflicts of interests with stakeholders to provide realistic and clear financial reports Private sectors 9

consumers : 

Encouragements of logical risk taking to contribute to productive activities Controlling the amount of consumptions Directing expectations M(money)=M1+M2+M3 consumers 10

What is the way out? : 

Every player, stick to their role The only way out of capitalism crisis is again capitalism The surgeon operates a patient injured by a knife, by a knife What is the way out? 11