exam essay

Exam Essay

In countries , the financial system of a country is controlled and in turn , banks are the most regulated financial institution . Bank regulation is very important because if not regulated , this would lead to adverse selection and moral hazard troubles . In fact , in to solve the free-riding problem of banking , private loans were created However , due to imperfect information , the private loans may not be of the best quality and thus , malfunctions in the banking system may materialize

The key elements of banking regulations and regulators are as follows

first , the risk management of the banking regulator . This is very important because this will prevent threats in the bank and can manage well risky matters . It may be inevitable to remove risk from banking that is why bank regulators might as well be able to handle risk Nevertheless , innovativeness can also be a good trait of a bank regulator . Second , banking regulations should not just be risky itself and put the institution in danger but should be aligned with the goals of the institution itself . Emphasizing to workers of the institution the necessity that is risk can be helpful because in this way , steps can be made towards the development of the bank . theless , it will be difficult for other people to accept risky methods because of uncertainty that is why it should be explained carefully to them . After all , other institutions may also be employing the same amount of risk in their firms , thus , competition is still present . Third , regulations which are under good risk management and are in congruence with the bank 's objectives give room for innovation in both what the bank has to offer and the management of the bank . Because of development of risk management which may be newly introduced to the institution , new financial offers and development of new rules can be attained . This may be done through gathering of comments from the entire bank with a constructive approach . Nevertheless , innovations should not be done immediately because competitor banks may not be engaging in the same level of activity which may enable them to take over the entire market Fourth and lastly , determining the perfect combination of risk management and the regulation may ultimately determine the effectiveness of the bank regulation . In addition , continuous development of such interplay would make the regulation evolve and make the whole institution benefit

Nevertheless , banking does not only exist locally . Because of the broadening of the horizon of the market of banking institutions , a mediator should be made , that is , the Bank for International Settlements

Basically , the Bank for International Settlements fosters collaboration of central banks and to make financial facilities for international financial operations available . It also can act as a trustee with regards to financial agreements made by parties involved . Its roles are agent or correspondent of central banks , arrange itself to be an agent or correspondent of a central bank , should the central bank object at the arrangements , it can do so but...