Given the complex nature of the world of money, the age-old proverb that states, “If you owe the bank $100, it is your problem,” is absolutely accurate.
It is the bank’s responsibility if you owe it one hundred million dollars.
The power dynamics that are at play inside the financial system are reflected in this proverb, particularly in relation to the techniques that are used for regulatory purposes.
Recently, frightening disclosures from the Bureau of Investigative Journalism have brought to light the fact that major Wall Street banks are not only violating regulations that are designed to avert financial catastrophes, but they are also doing so with the tacit agreement of regulators such as the Federal Reserve.
This situation raises significant concerns over systemic risks that have far-reaching repercussions, not only for retail investors but also for the entire public as a whole.
The allegations made by a whistleblower that JPMorgan Chase had been misreporting trading assets brought to light a concerning pattern: it is possible that a number of significant banks are engaged in tactics that are comparable to those of JPMorgan Chase, while the Federal Reserve is turning a blind eye to the situation.
Due to the fact that these large financial organizations appear to be more concerned with maintaining their profit margins than they are with adhering to fundamental safety standards, such regulatory leniency might rapidly escalate into a situation that is similar of the financial catastrophe that occurred in 2008.
During the administration of Donald Trump, the Federal Reserve had already begun the process of pulling back bank rules, which made it simpler for large financial institutions to circumvent essential requirements.
The Effects of Rule-Breaking on the Entire System
The rule-breaking that occurs on Wall Street has repercussions that extend far beyond the boardrooms of big financial organizations.
In the process of undermining regulatory frameworks, major banks contribute to an unequal playing field, which puts smaller banks at a disadvantage and ultimately drives them out of the market environment.
This results in the economy becoming more dependent on the larger banks, which in turn makes it more susceptible to risk.
The repercussions are extremely severe: when huge institutions collapse, the economic upheaval that follows has an effect on everyone, from individual retail investors to common individuals who might not even be aware that they are impacted.
Considering that the Basel Accord is responsible for establishing minimum capital levels for banks all over the world, non-compliance raises worries about the stability of the international financial system.
It is possible that banks in the United States, particularly those that are able to take advantage of loosened restrictions, could find themselves at a disadvantage on the world stage, which would only make the problem worse.
In spite of the fact that regulatory agencies all over the world are working to avert a catastrophe of a similar nature by enforcing laws, the strategy taken by the Federal Reserve runs the risk of fostering a “race to the bottom,” in which financial standards are lowered in order to attract business rather than to preserve stability.
The Consequences That May Not Be Visible to Retail Investors
When it comes to retail investors that actively trade in markets that are affected by Wall Street, such as during the infamous “Wall Street Bets” campaign, these systemic risks are especially concerning.
It is possible that retail investors will unintentionally face the brunt of the consequences when giant financial institutions put profit over regulatory compliance. This creates an environment in which retail investors may fall victim to the consequences.
Individual investors are left grasping for solutions when investments are wiped out without any prior warning as a result of economic downturns or rapid swings in market stability.
Furthermore, the general populace continues to continue to be generally uninformed of the extent to which financial rules are intricately enmeshed with their day-to-day lives.
There are many other areas that might be impacted by a regulatory environment that is weaker, including job security and the availability of consumer credit.
The ramifications of this systemic risk are not limited to financial matters; rather, it poses a threat to the overall stability of the economy.
When it comes to individuals who may rely on their savings accounts, retirement funds, or even home assets, the potential consequences of regulatory breaches on Wall Street are extremely severe.
In addition, the Securities and Exchange Commission (SEC) is now experiencing a departure of about 400 employees.
The Exhortation to Take Responsibility and Make Changes
In light of the fact that calls for change are becoming increasingly stronger among economists and watchdog organizations, it is absolutely necessary for regulatory agencies to adopt a more active approach in order to retain banking laws that are both clear and effective.
In order for financial institutions to successfully navigate an increasingly complicated global landscape, transparency must become an essential component of banking processes.
A closer study reveals that it is precisely these guarantees that can lead to careless behavior, which is a risk that might disrupt not only the financial markets but also the entire fabric of our economy. This is despite the fact that huge banks may argue that they require loosened restrictions in order to compete on a global scale.
Not only will the cultivation of a culture of accountability protect retail investors, but it will also facilitate the establishment of a more secure financial environment for future generations.
Why this is significant
Wall Street’s disregard for the rules is not a problem that is isolated to the upper class; rather, the consequences of this behavior are felt across society.
In light of the fact that we are moving forward, it is absolutely necessary for legislators, regulators, and the general public to have an awareness of the reality of systemic dangers.
A community effort to demand accountability in banking operations will be key in protecting the economic prosperity of everyone, not just those in the financial industry. Financial literacy is more important than it has ever been, and it is more important than ever to demand responsibility in banking practices.
Vigilance and a commitment to upholding regulations that protect us all from the risks of unrestrained greed and complacency are the keys to achieving financial stability. The path to this goal lies in the right direction.
Due to the fact that the activities of Wall Street are everyone’s concern, it is vital to present a unified front in order to demand stringent oversight and accountability in order to prevent another crisis.
