The goal of government regulation of financial-services industries is to maintain the integrity and stability of financial systems, thereby protecting both depositors and investors. Regulations include prohibitions against insider trading, against lending by management to itself or to closely related entities (called “self-dealing”), and against other transactions in which there is a conflict of interest. In less than two decades, deregulation transformed the world’s financial markets. It drove competition and growth in financial sectors and boosted the economies of developed and emerging countries alike. It also helped bring the international financial system to the brink of a complete collapse. Although it is also true that intervention in financial markets by government officials helped fuel the financial bubble that eventually burst.
1. What do you see as the “dark side” of deregulation, in terms of business ethics?
2. Do you think the recent increase in regulation is effective in helping prevent another global financial meltdown?
3. Do you think the warning of Adam Smith, one of the first philosophers of capitalism against the dangers of “colluding producers,” applies to the financial-services sector today?