Question

10 years ago, at a seminar with international financial officials, Timothy Geithner, who was then President of the New York Federal Reserve, referred to the financial crisis that had just hit the United States in past tense, wrongly assuming that the worst was over.
In his 2015 book Stress Test: Reflections on Financial Crises, Mr. Geithner corrected himself and called the events of late 2007, which included the near collapse of the largest mortgage lender in the US, “left of the boom”, a term used to describe the time before an improvised explosive device actually explodes.
The unprecedented devastation of the financial sector the following year, beginning in the United States (US) and quickly spreading across the world caught regulators off guard and ended up destroying countless lives.
To prevent the next crisis, regulators need to have oversight of the entire financial system, and a simple governance structure with clear lines of accountability.
Regulation cannot prevent the evolution of financial products. The key, instead, is for regulators to have the foresight to predict the next bubble that could bring down the entire economy and burst it in its infancy.
Mr. Geithner, who went on to help President Barack Obama battle the financial crisis as his Treasury Secretary, reflected later that the “current oversight regime (in the US) was a ludicrously balkanized mess”.
Consolidating and streamlining regulatory functions would have seemed logical after the global financial crisis exposed how vital signs were missed and leverage was allowed to pile up outside the traditional banking sector.
However, a decade later, the Securities and Exchange Commission and the Commodity Futures Trading Commission in the US remain separate despite significant overlap in their mandate. Similarly, regulation of depository institutions remains split between the Office of the Comptroller of the Currency, Federal Deposit Insurance Cooperation and Office of Thrift Supervision.
A working model of a streamlined and consolidated financial regulatory system may come from Singapore.
In Singapore, the entire financial sector is regulated by one entity, the Monetary Authority of Singapore (MAS). In addition, MAS is also a central bank and in charge of developing the financial industry.
MAS is also one of the few central banks and financial regulators in the world that sit very much within government, as a statutory body reporting directly to the Prime Minister.
Unsurprisingly, during the 2008 financial crisis, countries like […] Singapore found themselves a step ahead in their response. Subsequently, many economists encouraged greater collaboration between central banks, regulatory authorities and the government to maintain financial stability and respond quickly in the event of a crisis.
Adapted for academic purposes: The 3 Cs of financial regulation by Chirag Agarwal - Published 01 November, 2017

The article “The 3 Cs of financial regulation” compares the respective regulatory models in the US and the Singapore financial industry.
(a) Determine the advantages and drawbacks of a sectoral approach of regulation of the financial markets as exemplified by the US. (Maximum 500 words)
(10 marks)

Answer 1

The United States follow a sectoral approach towards financial regulation and this implies that multiple regulators such as Securities and Exchange Commission, Commodity Futures Trading Commission, the Federal Reserve as well as the Office of the Comptoller of Currency co-exists.
This multiplicty of agencies has a positive effect in the sense that there are multiple filters and checks and balances in the system which basically would result in any major risks getting flagged by either one of the agencies even if it misses some scrutiny by some of the agencies. So there is a fail safe mechanism built in the system. Another advantage is that work gets divided across multiple agencies and hence there is better oversight and no single agency is overburdened and specialised work force can look into specific risks.
The disadvanatges are also there for this system and the major problems of this system is that there could be a lack of co-ordination among the multiple agencies which might result in the good work of one agency getting undone by others. Moreover, there could also be bureacratic challenges as each of these agencies would have different mandates and also comes under different federal structure and thus quick flow of information for swift and efficient risk asessment and mitigation may be a serious challenge.