Role of governmental and commercial structures in crisis financial management Essay

The main causes of the deepening crisis mainly were the unpreparedness of the states and their governments to conduct an independent financial policy. Today, increasing efficiency and financial recovery of the economy depends on the ability of state to combine governmental financial regulators with the market mechanism.
In the current conditions of financial crisis, the reasonable establishment of a competent state regulation of financial flows is needed. Experience shows that the monetarist mechanisms of management must be complemented by a fairly strict state regulation. The state’s role in the economic life of the country should involve five main functions: provision of financial and legal framework for the effective functioning of market economy, financial support for competition, redistribution, management of distribution of material and financial resources, financial stabilization of the economy (Brigham & Houston, 2009).
It is the success in government regulation of financial injections in investment and technological advances that allowed Japan to jump into the second place in the world on economic power and the first place on performance in the historically short period of time. The development of Asian countries (Korea, Taiwan and others) occurs similarly.
However, it is clear that the government cannot act as the main investor. Budgetary funds for the development of production are typically allocated in accordance to the residual principle. Therefore, the central focus should be to implement the mechanism of structural investment policy aimed at supporting the points of economic growth, connected with the support for priority sectors and modes of production and aimed at restructuring (Moyer, 2011).
Financial policy of the government should be constructed so that approximately 80% of funds invested in the development of production facilities are owned by private investors and 20% are added by the state. But the budget will only fund the project which is mostly significant for the state: the regions of high unemployment, conversion companies, new technologies, etc. The idea is as follows: governmental point influences should encourage the redistribution of private investments in the public interest, but not replace those investments. However, evaluation of investment projects can be done only the bank that factually risks its money: it can adequately examine the situation on the market, the state of enterprises, produce a draft of a project, etc.
Thus, banks are the most important financial institutions in a market economy, especially in crisis conditions. Mobilizing temporarily free funds, banking system, turns them into functioning capital that generates income, thus increasing the real wealth of the country. Therefore, the efficiency of the banking capital is crucial for economic growth and improvement of living standards.
Currently, the monetary and credit system of the country is on a qualitatively new stage of development, which is characterized by a decrease in inflation rates reached by artificial compression of the money supply. On the background of the continuing decline in production, this has caused a decline in profitability of market instruments and the total bank margin, as well as exacerbation of payments crisis in the economy, the constant shortage of working capital for enterprises and organizations, the aggravation of social problems (Chambers, 2010, pp. 91-93). Thus, the level of all banking risks continues to grow while the returns on investments decline.
Financial risks constitute a large group of banking risks. They are determined by the probability of monetary loss and are associated with unanticipated changes in the volume, profitability, cost and structure of assets and liabilities of the bank. The financial risks include currency, credit, investment, market, liquidity risk, interest rate risk, the risk of insolvency, the risk of securities value change, inflation, basis risk, etc.
In the risk management process banks use special techniques united under a common name – hedging. Hedging mechanism provides compensation for financial losses that have occurred through changing of market prices of a certain instrument by one position to the income from other position. Hedging allows significant reducing or even avoiding price risks (Moyer, 2011).
Addressing these and many other problems of financial management require the information processed in a certain way that characterizes the current state of all banking assets and liabilities and their consistency, urgency, the associated risks.