Regulatory Failures In Banking And Insurance Sectors During The Global Financial Crisis: A Legal Analysis
- IJLLR Journal
- Mar 31
- 1 min read
Vishakha Jha, Amity Law School, Noida
ABSTRACT
The Global Financial Crisis of 2007–2009 was not, at its core, an unpredictable natural disaster. It was, as the Financial Crisis Inquiry Commission later concluded, a foreseeable catastrophe shaped by regulatory failure, institutional negligence, and the systematic dismantling of the legal safeguards that had, for decades, kept financial excess in check. This paper undertakes a legal analysis of the regulatory failures that permitted the crisis to incubate and then detonate in the banking and insurance sectors. It examines how the deregulatory agenda of the 1990s and early 2000s — epitomised by the Gramm-Leach-Bliley Act, 1999 and the Commodity Futures Modernization Act, 2000 — stripped away the architectural restraints on risk concentration and shadow banking. It analyses the collapse of Lehman Brothers, the catastrophic failure of AIG’s credit default swap portfolio, and the inadequacy of the pre-crisis prudential framework. The paper further examines the post-crisis legal response, including the Dodd- Frank Act, 2010, and evaluates whether the reforms enacted have addressed the structural vulnerabilities that produced the crisis. The paper concludes that while post-crisis regulation has meaningfully strengthened the banking perimeter, the insurance sector’s systemic risk profile remains inadequately addressed, and the shadow banking system continues to pose unresolved legal and supervisory challenges.
Keywords: Global Financial Crisis, Regulatory Failure, Banking Regulation, Insurance Regulation, AIG, Lehman Brothers, Dodd-Frank Act, Credit Default Swaps, Shadow Banking, Basel III, Systemic Risk, Gramm- Leach-Bliley Act.
