Bank regulation Essay Example | Topics and Well Written Essays - 3000 words - 1

Bank regulation - Essay Example Banks are big players in the financial sector of governments in the world. Because of that, banks affect the countries economically and hence their operations must be monitored. Some banks are very large that they are considered, â€Å"too big to fail† (Andrew, 2010). That means that such banks would cause a lot of economic problems if they were to go down. Such banks are very sensitive to their country’s economy as it is partially dependent on them. In the instance the banks crumble, it takes the government to provide funds to bail them out. If the government were to fail to do so there would be a financial crisis in the country. Bank regulation was put in place to achieve some aims. The aims and objectives vary from country to country but there are those that stand out and are common in many countries. Some of the aims are systemic risk reduction, protecting bank confidentiality, increasing credit allocation to deserving clients and to decrease fraud in banks. Systemi c risk reduction ensures that the financial system of a country does not fail completely due to irregular trading conditions of banks (Alexander, 2006, p.184). Protecting bank confidentiality ensures that the information that a bank is entitled to rightfully withhold from the public is not leaked. Credit allocation ensures that the right and deserving entities can access loans from the banks. Decreasing fraud ensures that banks are not used to perform financial malpractices like money laundering. Bank regulation occurs by applying certain principles that vary from country to country. Some principles are however common in most of the countries. The general principles of bank regulation therefore include supervisory review, market discipline and minimum requirements. Supervisory review involves licensing and monitoring of banks. For banks to operate they need to be licensed and this is done by the financial regulator. The Bank regulators after licensing banks monitor them to ensure they