International Banking Assignment Example | Topics and Well Written Essays - 4500 words

International Banking - Assignment Example Bank regulation incorporates detailed regulations and guiding principles overriding the operations, activities and acquisitions of the banking organisations.1 The regulation of the banking business activities has seen a number of policies under implementation. This section aims at analysing the different objectives of the regulation in regards to the deposits and investment related business. Further, the disadvantages in the regulation of the businesses due to the behaviours they encourage in the regulated entities of their customers analysed critically. 1.2 Banking Regulation Policy Highlights Financial regulations’ role in influencing the growth of banking business principles has become a key policy issue. The regulation of corporate governance in the financial sector has initially been regarded as a special area with standards, and rules to achieve the objectives of financial regulation involving the safety and soundness of the financial system and consumer, as well as inve stor protection.2 With banking regulation, the traditional principle-agent model used to analyse the relationship between shareholders, directors and the managerial team has given way to broader policy concerns aimed at maintaining financial stability, while ensuring that banks operate in a way that promotes broader financial growth as well as enhancing investor worth.3 The main reason why banking regulation is of much essence is due to systemic risks.4 These are risks whereby, economic problems at one or more banks spill over to a great number of other banks or financial systems as a whole. Regulation whether created at initial stages or after new models are fully operational, ought to obey two principles, which are proportionality and effectiveness. Poorly designed or timed regulation can obstruct responsible providers from entering and competing profitably on a level playing field. Thus, a well equaled approach incorporates recognizing the tradeoffs between protecting customers a nd fostering financial access.5 The laws pertaining to banking regulation appear complex and confusing, but in the real sense, with understanding of the objectives, it brings out a clear understanding of the intended application and projected achievements. 1.3 Main objectives of bank regulation Prudential: involves reducing the level of risk exposure to the bank creditors considerably. Therefore, the regulation aims at protecting the depositors. The concept of prudence is integral to bank regulation and supervision as it connotes the notion that, regulation requires banking activities be undertaken with reasonable care.6 Systemic risk reduction: This aims at reducing the peril of distraction resulting from unpleasant trading circumstances for banks, that in turn cause numerous or prime bank failures. This can also be referred to as ensuring monetary stability. Banks play a pivotal role in controlling the volume of money circulating in the economy of any given state. This in turn,