Financial regulation was not adequate to deal with the 2008 financial crisis because:
A)before 2008 banks were very small and could be effectively regulated by the states.
B)up until the 2008 crisis, the market had worked very well in preventing banking crises, so there was very little need for bank regulation.
C)the role of shadow banks had become very important, but shadow banks were not subject to banking regulation at the time of the 2008 crisis.
D)the Supreme Court had ruled that the regulatory powers of the Federal Reserve were unconstitutional and prohibited the Fed from using its regulatory powers.

Question

Quizplus · Accepted Answer

The role of shadow banks had become increasingly important leading up to the 2008 financial crisis, but these entities were not subject to the banking regulations in place at the time. As a result, the regulatory framework was not adequate to deal with the risks posed by shadow banking. Choices A, B, and D are incorrect. Banks had actually become much larger and more complex leading up to the crisis, which made effective regulation more challenging. While there were some successes in preventing banking crises prior to 2008, there had also been a number of significant failures that should have served as warning signs. Lastly, there were no recent Supreme Court rulings that prohibited the Federal Reserve from using its regulatory powers.

Financial Regulation Was Not Adequate to Deal with the 2008