1. What are the pros and cons of banking regulations stipulated by the central bank? Comment on the statement that regulations imposed on banks should be based on a strategic regulatory framework so as to be disclosed, transparent, equitable and predictable. -Pros and cons of banking regulations stipulated by the central bank: Pros: Central bank is one of the organizations which is in charge of making and maintaining bank regulation. Regulation helps to protect the public against loss through some of ways. First, gathering and evaluating information needed to assess the true condition of banks and other financial firms. Secondly, it requires the cameras and guards to reduce risk of loss due to theft. Periodic examination and audits is also help to reduce losses. Moreover, Government agencies stand ready to loan funds to financial firms faced with unexpected shortfalls of spendable reserves so the public savings are protected. In addition, Regulation assist the control of money supply, control the volume of money created by banks and competing financial firms appear to be closely correlated with economic conditions in order to achieve a nation’s broad economic goals such as high employment and low inflation. Another advantage is the preventing discrimination in granting credit or in other word, ensuring equal opportunity and fairness in the public’s access to credit and other financial services. It also help to provide the government with credit, tax revenues and other services, assist the conduct of monetary policy. Besides, public confidence’s promotion in the financial system which then lead to saving flow smoothly into productive investment and payments for goods and services are made speedily and efficiently is considered a pro of regulation as well. Moreover, through regulation, government can also help sector of the economy that have special credit need such as housing, small business and agriculture. Finally, It ensures that banks will be treated fairly by individual states and local communities as their activities are expanded across state lines Cons:
Apart from the advantages, bank regulations show some shortcoming. As a matter of fact, it may encourage monopoly due to the conditional entry. Additionally, it doesn’t prevent bank from failure because there are many other factor that affect banks to which it can not be said that bank can avoid failure by applying regulation. It also can not eliminate economic risk and guarantee that bank management will make good decisions, but create a struggle between regulators and banks going on definitively. One more disadvantages of strict regulation is that less regulated business win customers away from more-regulated banks. -Comment on the statement that regulations imposed on banks should be based on a strategic regulatory framework so as to be disclosed, transparent, equitable and predictable:
This statement may express the idea that regulation should be disclosed, transparent, equitable and predictable. Disclosed can bring the meaning of being publiced. All regulations should be available at all time. Regulator should issue and make available to the public final regulatory actions and the basis for those actions to enhance public understanding. They can protect themselves thanks to the right and knowledge that regulation provides them as well as conform to the regulation. Everyone should have the chance to access to the regulation which imposed on banks to gain knowledge about bank, its operation and activities under the regulation. This helps banks to clearly understand what they can or can’t do within their authorities and provide necessary knowledge to comply with the law and regulation. Transparent is clear and understandable. In term of banking regulation, all regulations need to be made in a clear, comprehensive way and in an attempt to avoid misunderstanding or confusing that may create opportunities for bad behaviors or tax loopholes. Ambiguous regulations...
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