Public+Policy+-+Banking+Regulation


 * Banking Regulation**

The problem which I will be focusing on and addressing is the banking regulation public policy, but before I go further to throw more hints and give details on this particular topic will like to explain what is the meaning of the word public policy which simply means the basic issues that governments needs to address to the public which can be in the forms of regulations, laws and government decision or action for the public interest. Presently the banking regulation public policy is more concern on the future financial crises that the banks are facing and also the financial market during this recession period which they need to construct basic institutions and incentive structures in the transition economies. The ways to reduce bank failures is to ensure that the measurement of the risk affecting the diversification in the adequacy of the capital reserve. The boundary between banking and rest of the financial market network is based upon the upper bound on the effectiveness of supervision. The regulations have tendency to socialize the costs of failure by shifting them from the private depositors of the failed banks to general taxpayer but the greatest danger of the systemic risk can be seen from the damage that may be imposed on the economy from series of failed banks which is due to the adverse effects of the poor public policies imposed into the economy system. The ways for prevention is to take a look at the re-occurrences of the recent banking problems that needs a better development and more incentive compatible and market assiatance for both the pridential and non-prudential regulations. The main reasons bank fail is as a result of the decrease in market value of its assets over the liabilities which will result in making the market value of its net worth capital nagative and resulting to the inability of the bank not able to pay all its depositor in full and at the appropriate time. The fear of the failure fiancial market is because it may spill over to other banks and even the whole fiancial system at large in other countries. Firstly, the fear that banks invest assets that are illiquid and difficult to market can contain private information and changes in market values which will make depositors to run irrationally and unnecessarily on banks. The systemic risk simply means the probability that the cumulative losses which will occur from an event that ignites a series of sucessive losses along a chain of institutions or market comprising. The Federal reserve is been in charge to act as the lender of the last resort, thereby offsetting the impact of losses of resreves from the banking system and to reduce and control the rate of money supply below appropriate levels. The average annual failure rate of the banks in united states was very high before the formations of the federal reserve system in 1914 was lower than the other non-bank institutes i.e failed banks were lower than the lost creditors who failed at the non-banks. But the introduction of the government regulation and control on the financial institutions in U.S was to intend to provide protections against the fragility or breakage rate in banks, therefore providing poorly designed and mis priced safety under banks for depositors. Due to the Federal reservers and rge reinforced of the FDIC deposit guarantees the market discipline on banks to reduce substantially, therefore permitting banks to increase their risk exposures in both assets and liabilities by reducing their capital ratio. The Federal Reserve did encourage banks to be greatly concerned about the daylight over drafts and also structure payment system transfers in United States as it appears to encourage risk taking in banks, but the maximum loan limits established for each banks and also the collaterals required against debit positions and the participants in the clearing process subject to minimum capital requirments determined by the clearing house. Secondly, the systematic riak in banks may exist without government regulation on net and the probability of instability occuring in banking and the intensity of any results damages are likely to be greatly increased by some if the government policies that are adopted into the financial system. The credit risk that are assumed by banks in the clearing process is little different from that which are assumed by them in any transaction. Thirdly, presnetlly president Obama marked out three basic plans recently which will help to expand the basic regulations policy in the fiancial market and banks institutions and they are as follows: (a) for the federal reserve to designate some financial institutions in other to bring about the threat of fiancial stability in the economy system. (b) The creation and establishment of Consumer financial Protection agency is to ensure that all loan documents of morgages, auto loans and other types of consumer credits which are unstable and also retaining the stock markets i.e Security Exchange Commission( SEC). (c) Bringing about new changing rules for some financial market and also ensurong that anyone would own a five percent of bonds. In Conclusion whenever one hears that the government is talking about systemic risk, it simply means that they want you to pay more taxes in other to pay for more regulations that will be introduced, but the best protection against bank failures and the systematic risk regulation is the macro economies policy because it helps to encourage and achieve stability and also to avoid price increases which will make banks to be highly invulnerable to failure in the near by future. But with the introduction of an effective system of structured and the early intervention resolution (SEIR) is for the incentives compatible and market oriented and also note that under SEIR bank failures would be greatly reduced but not completely eliminated from occuring in the economy, but the main purpose of the SEIR is to enforce and ensure a great closure rules among the shareholders in the banking system.