Regulation of the Financial System

The financial system is among the most heavily regulated sectors of the American economy. The government regulates financial markets for two main reasons: to increase the information available to investors and to ensure the soundness of the financial system. We will examine how these two reasons have led to the present regulatory environment. As a study aid, the principal regulatory agencies of the U.S. financial system are listed in Table 3.

Table 3 Principal Regulatory Agencies of the U.S. Financial System

Regulatory Agency

Subject of Regulation

Nature of Regulations

Securities and Exchange

Organized exchanges

Requires disclosure of

Commission (SEC)

and financial markets

information, restricts insider

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