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Banking Regulation - Essay Example
Author : bayercharlie
Finance & Accounting
Pages 9 (2259 words)
Name Institution Course Instructor Date Banking Regulation Introduction The idea of banking regulation stems from systemic effects of banking operation in the market. Economic stability depends on principles that influence financial market players (Beck, 2011:50)…
The financial crisis exposed failures of banks to control financial meltdown. The case pointed out that banks directed their interest at the expense of the common good of the financial markets. Regulation in the sector is an issue that is quite complex because UK has banks which handle domestic and international banking. This paper analyses banking regulation and its effects on the financial market. Argument for and against regulation The argument about the need for bank regulation has divided economists into two groups. The first group feel that banking sector should institute policies, which regulate operation of banks while second group feel that banks are volatile to instability, hence less need for regulation. Economists have observed that unregulated actions lead to greater social marginal costs and less private marginal costs (Slaughter and May. 2011). The effects of social marginal costs influence the overall economy because banks form important units of making public payment. This contrasts to private marginal costs because it belongs to a clique of shareholders of the firm. Turner Review on banking regulation proposed interest policy that should be able to tone down macro stability as well as bubbles in the financial sector. However, during the financial spill it was evident that central banks were unable to control macro stability of the banks. ...