Why financial services require regulation

But it has also been a decade of failed banks and banking policies and of major economic crises, especially in Asia, that had their roots in financial failures. The latter events should not be interpreted as a reason for wholesale repudiation of the former.

Why financial services require regulation

But it has also been a decade of failed banks and banking policies and of major economic crises, especially in Asia, that had their roots in financial failures.

The latter events should not be interpreted as a reason for wholesale repudiation of the former. The net effects of the experience of market-based policies and deregulation surely has been and will continue to be positive.

This principle applies as forcefully to the world of developing and transition economies as to the world of industrial and post-industrial economies. The remainder of this paper will expand on that theme. In Section II we will discuss the aspects of finance that make it important and special and the implications of that specialness for the structure of finance and of the financial sector in an economy and for the regulation of the financial sector.

Banking regulation has existed since the chartering of banks. Today, it serves four main purposes. This post is the first in a series titled “Supervising Our Nation’s Financial Institutions.” The series, written by Julie Stackhouse, executive vice president and officer-in . That’s why regulators require companies to fully disclose information. That way, the entire market is better informed. This results in a greater willingness of firms or individuals to invest. What the government’s doing about financial services regulation.

Section III will develop a framework for understanding and categorizing regulation in general and apply it specifically to financial regulation. Section IV will develop a list of the components of sensible financial regulatory system. Section V will offer a brief conclusion. A Brief Vocabulary In the remainder of this section we will establish a brief vocabulary, since the terms, institutions, and structures of finance are somewhat specialized and may be unfamiliar.

By a financial intermediary, we mean an enterprise or institution that holds invests in financial assets such as loans, mortgages, shares of stock, etc.

Included in this category would be banks and other depository institutions, insurance companies, pension funds, mutual funds unit trustscommercial finance companies, and consumer finance companies.

By a financial facilitator, we mean an enterprise or institution that facilitates financial transactions but that is not primarily a financial intermediary itself. Included in this category would be stock brokers, dealers, market makers, financial advisors, accountants, auditors, rating agencies, analysts, publishers of financial newsletters, etc.

Finally, because banks and similar depository institutions loom large in financial regulation, we offer in Figure 1 a stylized portrayal of the essential features of a bank, as represented by its balance sheet. Its assets are the loans that it makes, since it expects to be paid back, with interest.

Its liabilities are the deposits that it has accepted which provide the funding for the loanssince it owes that amount is liable to the depositors.

The Government as Moderator

The arithmetic difference between the value of the loan assets and the value of the deposit liabilities is the net worth of the bank—its owners' equity—or, as the phrase is commonly used in finance, its capital. So long as the value of the bank's assets exceeds the value of its liabilities—i.

In much of the discussion of banks, it will be important to remember that the depositors essentially stand as lenders to the bank. The Specialness of Finance, and the Implications Finance is special, for at least three reasons.

First, finance is ubiquitous. Every individual, enterprise, organization, or government requires finance, even if it is self finance, to smooth out income and expenditure flows and to provide the basis for investments.

Why financial services require regulation

Second, finance is central to the development of any economy. An efficient financial sector will do this task well and encourage more saving as well as more and more efficient investment.Because if they weren’t regulated and examined constantly, the big banks will abuse their power for their own gain.

Hell, they do it now even though they are regulated and examined. The leaders running the very large banks are motivated by short-t.

Why simple rules for financial advisor conduct can often balloon into long and complex regulations. until and unless the financial services industry is forced to actually become less complex Why Simple Principles Still Require Long, Complex Guidance [].

It was also the reaction of the policymakers meeting in Washington over the weekend. More regulation is on its way. Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system.

FRB: Regulation E: Compliance Guide

May 14,  · One of the characters in the classic film “Stagecoach” is a banker named Gatewood who lectures his captive audience on the evils of . financial services are regulated so that general people are not affected by the fraudulent activities carried out by anyone.

Also by regulating government gets some revenues in the form of taxes. Apart from the above, there could be n mionr reason.

Should the government do more to regulate financial markets