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Comparative Banking in the USA - Assignment Example

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In the following paper “Comparative Banking in the USA” the author discusses some of the principles of banking regulation and supervision, which include minimum capital ratio requirements, disclosure of the financial information and finally bank license. …
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Comparative Banking in the USA
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Download file to see previous pages The central bank requires banks to maintain a certain amount of reserve. This means that commercial banks should not lend out all of its deposits but rather should maintain some minimum balance to be used to meet immediate depositors withdraws. Further, the central bank supervises banks to ensure that they disclose accurate and relevant financial information that may be used by investors and other users to determine the financial worthiness of a given bank. In addition, the central bank act as a lender of last resort to the /commercial banks and therefore, disclosure of financial information may help the central bank to determine the amount of loan that can be advanced to a certain bank (James, Jie and Daniel,p.13). Further, the guiding principle for effective banking supervision includes; banking activities should be supervised by an established authority in their home country that is capable of performing supervision. Secondly, cross-border banking supervision should be carried out by the host country based on the agreements made between the two countries.
Therefore, the argument for banking regulations by the central bank tends to be classified into three major categories namely; information synergy, systematic risk, and technical expertise argument. The information synergy argument stresses that the central bank should continue executing supervisory and regulatory role to gather confidential information from the commercial banks. The information obtained to be useful in enhancing economic stability as well as ensuring there is efficiency in the banking system.  ...Download file to see next pagesRead More
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