Malfunctioning banking systems impede economic progress, exacerbate poverty, and destabilize economies. Specifically, a substantial literature documents that well-functioning banks accelerate economic growth, which in turn alleviates poverty. An example of this is the banking sector in Ghana which presents attractive opportunities for growth and development, driven by key reforms to rules and regulations which, in turn, have encouraged new entrants to the sector and fueled intense competition. within the industry. Banks in the countries are responsible for monetary policy and also help the Ministry of Finance to ensure economic stability. To do this, it manages interest rates, inflation and exchange rates. The central bank,It is also responsible for the regulation and supervision of the banking system of some countries, for example Mexico, as well as other non-bank financial institutions.
The operating institutions include major foreign and local banks, rural and community banks, savings and loan companies, and other finance and leasing companies.
This essay provides a detailed and comprehensive analysis of how the central bank and other regulators of the financial system have performed their supervisory and regulatory functions. Supervision implies, not only the application of rules and regulations, but also a certain judgment regarding the quality of assets, the adequacy of capital and the management of financial institutions, while regulation involves the body of specific rules that govern expected behaviors that limit or control business activities and operations. of financial institutions. The resulting close link between financial markets has in turn required, among others, the development of financial derivatives,strong support for reducing counterparty credit risk and a growing need to clarify laws and regulations regarding cross-border financial contracts. Consequently, Banking Supervisors around the world realized and recognized the need to harmonize laws, regulations, codes and standards to promote economic growth and international financial stability.
The regulation that characterizes banking determines that banks are considered different from other firms. Obviously, regulation has made them special. What makes the bank different and special is that its failure represents a great threat to the economy.
Also, particular concerns are links or networks between banks. A crisis in a bank can lead to a crisis of confidence in the banking sector as a whole, emphasizing the importance of system risk. The direct source of instability in banking is often associated with the role of banks in providing liquidity to depositors, particularly vulnerability to foreclosures rooted in the withdrawal on demand and sequential service restriction characteristics of the deposit agreement. The fear is that excessive withdrawals would force a bank to liquidate assets and therefore incur substantial settlement costs that undermine the bank's ability to honor its remaining deposits. Excessive withdrawals could be triggered by concerns for the bank's welfare.
The potential vulnerability of deposit-funded banks to runs and the vulnerability of the banking system to panics are often used as a motivation for regulation. This requires an evaluation of the regulation to suggest ways to improve it.
The banking system in any economy plays the important role of promoting economic growth and development through the process of financial intermediation. Development economists argue that the existence and evolution of financial institutions and markets constitute an important element in the process of economic growth. The banking system, by promoting economic growth, performs the following functions, among many others:
- Improve the efficiency of resource mobilization by pooling individual savings; Increase the proportion of social resources dedicated to assets that generate interest and long-term investments, which in turn facilitates economic growth. This is related to the savings function of banks and the fundamental role of savings is demonstrated by the fact that when it is scarce in any nation, investment and the standard of living decrease Provide a more efficient allocation of savings in the investment than what individual savers can achieve on their own. This flow of savings into investment ensures that more goods and services can be produced, increasing the nation's productivity and standard of living.Reduce the risks that companies face in their production processes by providing liquidity and capital; It allows investors to improve the diversification of their portfolio by providing insurance and project monitoring. In addition to providing insurance services as part of universal banking practice, banks have developed a series of products tied to specific insurance policies that are designed to offer protection against life, health, property and income risks. true platform for an effective implementation of monetary policy, thus improving the effective management of the economy. The banking system has been one of the channels through which the government carries out its policy of stabilizing the economy and controlling inflation.It allows investors to improve the diversification of their portfolio by providing insurance and project monitoring. In addition to providing insurance services as part of universal banking practice, banks have developed a series of products tied to specific insurance policies that are designed to offer protection against life, health, property and income risks. true platform for an effective implementation of monetary policy, thus improving the effective management of the economy. The banking system has been one of the channels through which the government carries out its policy of stabilizing the economy and controlling inflation.It allows investors to improve the diversification of their portfolio by providing insurance and project monitoring. In addition to providing insurance services as part of universal banking practice, banks have developed a series of products tied to specific insurance policies that are designed to offer protection against life, health, property and income risks. true platform for an effective implementation of monetary policy, thus improving the effective management of the economy. The banking system has been one of the channels through which the government carries out its policy of stabilizing the economy and controlling inflation.In addition to providing insurance services as part of universal banking practice, banks have developed a series of products tied to specific insurance policies that are designed to offer protection against life, health, property and income risks. true platform for an effective implementation of monetary policy, thus improving the effective management of the economy. The banking system has been one of the channels through which the government carries out its policy of stabilizing the economy and controlling inflation.In addition to providing insurance services as part of the universal banking practice, banks have developed a series of products tied to specific insurance policies that are designed to offer protection against life, health, property and income risks. true platform for an effective implementation of monetary policy, thus improving the effective management of the economy. The banking system has been one of the channels through which the government carries out its policy of stabilizing the economy and controlling inflation.It provides a true platform for an effective implementation of monetary policy, thus improving the effective management of the economy. The banking system has been one of the channels through which the government carries out its policy of stabilizing the economy and controlling inflation.It provides a true platform for an effective implementation of monetary policy, thus improving the effective management of the economy. The banking system has been one of the channels through which the government carries out its policy of stabilizing the economy and controlling inflation.
These in turn affect employment, production and prices. They facilitate a reliable payment system that supports the economy. In this regard, some financial assets such as checking accounts, deposit / savings accounts, household accounts, etc., which serve as means of exchange of payments, come to mind easily. Checks, credit cards and electronic transfers are the main means of payment today.
Provide credit. The banking system grants credit to finance investment and consumption.
Regulation of banks has been defined by Llwellyn as a set of specific rules or agreed behavior imposed by the government or other external agency or self-imposed by an explicit or implicit agreement within the industry that limits the commercial activities and operations of banks. In short, it is the codification of public policy towards banks to achieve a defined objective and / or act with prudence. Banking regulation has two main components:
- The agreed norms or behaviors; yMonitoring and scrutiny to determine safety and soundness and ensure compliance.
Supervision, on the other hand, is the process of monitoring banks to ensure that they are conducting their activities safely and in accordance with laws, rules and regulations. It is a means to determine the financial condition and to ensure compliance with the rules and regulations established at any given time. Bench claims that effective supervision of banks leads to a healthy banking industry.
The objectives for banking regulation and financial supervision
Banks around the world are more regulated than other institutions due to their roles as financial intermediaries. As financial intermediaries, banks mobilize funds from surplus spending units at a cost by lending those funds to deficit spending units at a price both on and off the coasts of a country. In fulfilling their role as financial intermediation, it is the responsibility of banks to ensure that depositors can access mobilized funds when necessary. While in your care, the mobilized funds advance as loans and advances at a price to be paid in conjunction with the principal loan. The differential between the cost of funds and the price of loans made in this way is the most important source of income for banks.Banks also provide an efficient payment mechanism in the economy. They provide a simple and efficient system for making payments to settle business and personal transactions and international financial obligations on behalf of their clients. Therefore, savings are stimulated for investment in the economy by banks. The weight of the evidence is that banks in the intermediation process contribute significantly to real economic development.The weight of the evidence is that banks in the intermediation process contribute significantly to real economic development.The weight of the evidence is that banks in the intermediation process contribute significantly to real economic development.
conclusion
In performing their various functions, banks are expected to ensure prudent asset management and ensure the safety of depositors' funds. They are expected to strictly adhere to safe and sound banking practices, maintain adequate internal control measures to prevent incidents of fraud, counterfeiting and other financial malpractices, to ensure stability and build public confidence in the system. Proper management of banks is therefore a prerequisite for economic prosperity in any country as a vehicle for the implementation of monetary policy.
References
- Bascom, Wilbert. The Economics of Financial Reform in Developing Countries, 1994 Baydas, Mayada, Douglas H Graham, Liza Valenzuela. Commercial Banks in Microfinance: New Actors in the Microfinance World, Ohio State University, August 1997 Berenbach, Shari, and Craig Churchill. Regulation and Supervision of Microfinance Institutions. Experiences from Latin America, Africa, and Asia. The Microfinance Network. Occasional Paper No.1, 1997 Chávez, Rodrigo A. and Claudio Gonzales Vega. "Principles of Regulation and Prudential Supervision and their Relevance for Microenterprise Finance Organization." New World of Micrenterprise Finance. Eds. María Otero and Elizabeth Rhyne, Kumarian Press, 1994 https://www.forbes.com.mx/regulacion-financiera-fundamento-para-el-crecimiento/https://www.aebanca.es/importancia-y-estabilidad-bancaria/
