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Regulation of Financial Institution (Rationale (Prevent excessive money…
Regulation of Financial Institution
Intro
Regulation - setting of specfic rules of behaviours firms have to abide through law or regulatory agency
Monitoring these regulations - process of authority assesses financial firms to evaluate whether these rules are obeyed
Stringent gov rules limit FI
:
Services offered
Territories can enter
Make up of portfolio of assets,liabilities and capital
How they price and deliver services to public
Rationale
Prevent excessive money creation and excessive inflation
Creation of money
closely associated to
inflation
In
uncontrolled
money growth
outstrips
growth in eco's
production
of g&s,
price rise
-
damage consumer with fixed income
Ensure important financial services - reliable & reasonable cost
Aid gov in collection and dispersal of tax revenues
Economic policy - manipulate interest rates & MS
gov need to regulate FI due to above needs
Ensure equal opportunities and fairness in public's access to financial services
NO
discriminatory policies
E.g. Previously, many groups - women, racial minority groups, elderly, etc - ability of borrowing is restricted
Promote public confidence in financial system
w/o public confidence -
withdrawal
of savings - reduce
volume of fund
for investment
slow
eco growth
rate - public
living standard
fall
Concern of safety of public funds
reckless mng
and ultimate
loss
of
personal savings
-
devast consequences
towards public's future
economic well-being
savers
- responsible to evaluate
quality and stability
of FI
gov
-
enforce regulations
for those without expertise
Regulation towards FI?
Harm
Regulatory dialects not the most productive forms
Time and energy spent on
regulatory compliance
- costly
Cost factor
limit entry of new FI
discourage development of
new services
encourage
consolidation
of small FI
Benefit
increase
public confidence
Spawn innovative escapes through
loopholes
in the resulation
Subsidize growth
of FI &
protect
them from
extreme competition