Impact of financial regulation and supervision

0
247

Bad banking systems impede economic progress, exacerbate poverty, and destabilize economies. Specifically, a substantial literature documents that well-functioning banks accelerate economic growth, which in turn alleviates poverty. An example of this is the banking sector in Ghana that presents attractive growth and development opportunities, driven by key reforms to standards and regulations that, in turn, have encouraged new participants in the sector and have driven an intense Competition within the industry. Banks in countries are responsible for monetary policy and also help the Ministry of Finance to ensure economic stability. It manages interest rates, inflation and exchange rates. The Central Bank is also responsible for the regulation and supervision of the banking system in some countries, for example, Mexico, as well as other non-bank financial institutions.

Operating institutions include major foreign and local banks, rural and community banks, savings and loan companies, and other financial and leasing companies.

This Essay provides a thorough and comprehensive analysis of how the central bank and other financial system regulatory bodies have performed their supervisory and regulatory functions. Supervision implies not only the application of rules and regulations, but also a certain judgement regarding the quality of assets, the sufficiency of capital and the management of financial institutions, while regulation involves the body of rules Specific actions that govern the expected behaviors that limit or control business activities and operations. of financial institutions. The resulting close link between financial markets in turn has required, among others, the development of financial derivatives, strong support to reduce the risk of counterpart credit, and a growing need to clarify laws and regulations with On cross-border financial contracts. As a result, Bank Supervisors around the world realized and recognized the need to harmonize laws, regulations, codes and standards to promote economic growth and international financial stability.

The regulation that characterizes the banking determines that the banks are considered different from other firms. Obviously, regulation has made them special. What makes the bank different and special is that its failure poses a major threat to the economy.

Also, particular concerns are links or networks between banks. A crisis in a bank can lead to a crisis of confidence in the banking sector as a whole, emphasizing the importance of the risk of the system. The Direct source of instability in banking is often associated with the role of banks in providing liquidity to depositors, particularly vulnerability to executions rooted in the characteristics of withdrawal to demand and restriction of service Sequential of the deposit contract. The fear is that excessive retreats would force a bank to liquidate assets and therefore incur substantial liquidation costs that undermine the bank’s ability to honor its remaining deposits. Excessive retreats could be caused by concern for the welfare of the bank.

The potential vulnerability of banks financed by deposits to bullfights and the vulnerability of the banking system to panics are often used as motivation for regulation. This requires an assessment of the regulation to suggest ways to improve It.

The banking system in any economy plays the important role of promoting economic growth and development through the financial intermediation process. Development economists argue that the existence and evolution of financial institutions and markets are an important element in the process of economic growth. The banking system, in promoting economic growth, performs the following functions, among many others:

Improve the efficiency of resource mobilization by collecting individual savings;
Increase the proportion of social resources devoted to assets that generate long-term interests and investments, which in turn facilitates economic growth. This relates to the bank’s saving role and the fundamental role of savings is demonstrated by the fact that when it is scarce in any nation, investment and standard of living diminish.
Provide a more efficient allocation of investment savings than individual savers can achieve on their own. This flow of investment savings ensures that more goods and services can be produced, increasing the nation’s productivity and standard of living.
Reduce the risks faced by companies in their production processes by providing liquidity and capital;
It Allows investors to improve their portfolio diversification by providing insurance and project monitoring. In Addition to providing insurance services as part of the universal banking practice, banks have developed a series of products linked to specific insurance policies that are designed to provide protection against the risks of life, health, property and income.
It Provides a real platform for an effective implementation of monetary policy, thus improving the effective management of the economy. The banking system has been one of the channels through which the Government carries out its policy of stabilizing the economy and controlling inflation.

These in turn affect employment, production and prices. They Provide a reliable payment system that supports the economy. In this sense, some financial assets such as current accounts, deposit/savings accounts, household accounts, etc., which serve as means of exchange of payments, come to mind easily. Checks, credit cards and electronic transfers are the main means of payment today.

It Provides credit. The banking system gives credit to finance investment and consumption.

THE regulation of banks has been defined by Llwellyn as a set of specific rules or agreed behavior imposed by the Government or other agency or self-imposed by an explicit or implicit agreement within the industry limiting the activities and commercial operations of the banks. In Short, it is the codification of public policy towards banks to achieve a defined objective and/or to act prudently. Banking regulation has two main components:

Agreed standards or behaviors; And
Monitoring and counting to determine safety and strength and ensure compliance.

Monitoring, on the other hand, is the monitoring process of banks to ensure that they are carrying out their activities safely and in accordance with the laws, norms and regulations. It Is a means to determine the financial condition and to ensure compliance with the rules and regulations established at any given time. Bench argues that effective bank supervision leads to a healthy banking industry.

The objectives for banking regulation and financial supervision

Banks around the world are more regulated than other institutions because of their roles as financial intermediaries. As financial intermediaries, banks mobilize funds from surplus expenditure units at a cost for the loan of such funds to deficit spending units at a price both on and off the coast of a country. By fulfilling its financial intermediation function, it is the responsibility of banks to ensure that depositors can access the mobilized funds when necessary. While under your care, mobilized funds advance as loans and advances at a price that will be paid along with the principal loan. The difference between the cost of the funds and the price of the loans given in this way is the most important source of income for the banks. Banks also provide an efficient payment mechanism in the economy. They Provide a simple and efficient system for making payments to liquidate business and personal transactions, and international financial obligations on behalf of their customers. Therefore, savings are stimulated for investment in the economy by banks. The weight of the evidence is that banks in the intermediation process contribute significantly to real economic development.

Conclusion

In performing its various functions, banks are expected to ensure prudent asset management and ensure the security of depositors ‘ funds. They are expected to adhere strictly to safe and sound banking practices, maintain adequate internal control measures to avoid incidents of fraud, counterfeiting, and other bad financial practices, to ensure stability and to generate Public trust in the system. The proper management of banks is therefore a prerequisite for economic prosperity in any country as a vehicle for the implementation of monetary policy.

Dejar respuesta

Please enter your comment!
Please enter your name here