The banking industry is heavily regulated. Explain why the regulations failed to prevent the 2007-2009.

A solid system of bank regulation is crucial in ensuring that banks or financial institutions have concentrated levels of risks that could be very detrimental to the banking and financial system (Friedman, 2011). Since people believe that regulators are able to see problems and act on them before the market does, regulation adds more systematic risk to the system. This creates an illusion of higher stability and safety that actually exists like in the case on 2008 financial crisis (Foster & Magdoff, 2009). The regulation was not able to regulate money supply as banks created huge sums of new money too quickly that pushed house prices (Foster & Magdoff, 2009). Huge amounts of loans created resulted in huge debts in the economy that become unpayable because the debts rose quicker than incomes. People stopped repaying the loans making banks to be in danger of going bankrupt. The bank regulation failed to constrain the creation of new money and private credit by the financial system (Friedman, 2011).

Discuss the pros and cons of the new bank regulations that have been implemented to prevent another financial crisis, and how these regulations affect profitability

The new bank regulation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, serves as the basis for future legal improvements as well as rulemaking (Cooley & Richardson, 2011). It requires fair and full disclosures by lenders to credit consumers thus assessing their creditworthiness that ensures no default in repayment. Also, it creates a framework for putting banks and other financial institutions that are failing into receivership that allows orderly reorganization and dissolution. This ensures that banks are well-managed and well-capitalized thus avoiding future financial crisis (Copeland & Library of Congress, 2010).

New bank regulations prevent growth and innovation that hurts growth and also curtail efforts by banks and financial institutions to engage in more profit making schemes (Copeland & Library of Congress, 2010). The new banking regulation might choke off probable sources of new growth. Also, the regulation has failed in addressing the continuing increase in global financial imbalances (Cooley & Richardson, 2011). These regulations curtail the efforts by banks in engaging in more profit making schemes which lowers profitability of banks.