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Financial stability and resilience of the banking industry are the main current concerns of national and international regulator - Essay Example

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Financial stability and resilience of the banking industry are the main current concerns of national and international regulators Discuss 1. Introduction Banking is regarded as the heart of global financial system for the reason banks act as the intermediary for pumping money from those who have it to those who are in need of it…
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Financial stability and resilience of the banking industry are the main current concerns of national and international regulator
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Download file to see previous pages However, when the economies were overheated and an economic boom was witnessed, many governments and monetary authorities lost sight of the fact that unbridled banking would ultimately cause the downfall of the financial system. Consequently, the fact that many of the financial instruments created were short-sighted in nature and dubious in character was lost among the policy makers and political leaders. Such a situation arose out of the fact that many of their activities were uncontrolled in nature. The global financial meltdown of 2007-2009 the impact of which is felt even today among the global economies brought a shock among them which made such leaders and policy makers to wake up from the slumber and meet the harsh reality that global financial system needs a through overhaul and if appropriate and timely measures were not taken the threat to the global prosperity during 21st century would turn out to be a monster which would become entirely uncontrollable. There was a sudden urgency to enact prudential regulations. However, the continued worsening of the world economies reeling under pressures of weakening manufacturing activities, growing unemployment and uncertainties have brought into focus a set of arguments that such prudential regulations should be slowed down. ...
y him for such an argument is that, firstly, “the financial stability is about resilience”, secondly, “preserving financial stability involves a wide range of policy areas” and thirdly, “a globalised financial system requires global rules”, fourthly “ global financial regulators should stay focused on the end result they want to achieve, namely, a system characterised by less leverage, better liquidity management, sounder incentives, less moral hazard, stronger oversight and more transparency”2. Towards realizing the above, he has set an agenda which includes reforms and regulations on the bank capital, liquidity, financial products (e.g. OTC derivates,) and among other things micro and macro prudential regulations. Each one of the points averred by him is analyzed below. 2.1. Resilience Caruana equates resilience with financial stability and believes that this is something which the world economies should prepare well in advance in terms of capital, liquidity, infrastructure etc to safeguard themselves from the shocks, external/internal so that there is no repetition of the nasty situation witnessed during the 2007-09 global financial meltdowns. The same view has been advanced by some other scholars. According to Sheehan3, Financial regulations have two sides attached to them, viz, micro and macro prudential regulations. Micro prudential regulations seek to focus themselves towards protecting the interests of smaller savers and borrowers from grey practices of financial institutions while the macro ones engages themselves in the creation and implementation of rules that goes towards promoting the stability of global financial systems and reduction of systemic risks. Whether it is micro or macro, each country creates its own financial regulators and ...Download file to see next pagesRead More
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