Prescription Financial Products
NEW DELHI – One positive fallout of the financial crisis of 2007-201? is our realization that financial products can be as complex and dangerous as drugs. This realization has led to innovative ideas and experimentation with new laws, regulations, and institutions around the world.
In India, the government has announced the establishment of the Financial Stability and Development Council (FSDC) to address inter-regulatory coordination issues and provide macro-prudential supervision. In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and new initiatives to monitor the safety of financial products, could alter the architecture of finance.
Several proponents of these new ideas have openly used the analogy with drugs. It has been argued that if, in 2007, the US had a Financial Products Safety Commission akin to its Food and Drugs Administration, the market would not have been flooded with “teaser” mortgages that entangled millions of households in chains of predatory credit.