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Money and banking - Book Report/Review Example

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Money and banking

Critics of the bailout programs argue that free markets ought to establish which banks carry on, which fail, how much bankers should be paid, and how banks should lend (Hudgins & Rose, 2012). However, this argument is wrong since banking is not a private sector. Banks are shareholder-owned firms. Government role is important as it has raised competence and lowered costs in the banking sector. Government role in the banking industry can be classified into various categories such as mitigating market failures because of asymmetric and costly information, maintaining the soundness and safety of the banking system, financing socially valuable projects, promoting financial growth, and providing access to competitive financial services to clients from isolated areas. It is significant for the government to involve in this sector. Courtesy of the government charters, banks can take part in a host of federal programs, which is not applicable to regular companies like Apple and McDonald’s. For example, the Federal Deposit Insurance Corp guarantees bank deposits. That is like the government giving a free lifetime guarantee on your iPod, a situation that does not occur in the private sector (Hudgins & Rose, 2012). ...
That way, a most efficient credit system is created for the nation. When such a system breaks down, the government can impose reforms in 18 months, which means the banking business is infused with money to keep credit flowing and requesting banks to operate by a short-term set of tightened standards. According to Mishkin, the government can also initiate regulatory reforms in the banking system, which is an important step in stabilizing the financial sector. Regulatory reforms can increase the role of competition, which will in turn spur reduced margins in financial services as well as raising efficiency by forcing the consolidation or exit of comparatively inefficient banks and by encouraging innovation (Mishkin, 2009). Reforms by government in regulations can also contribute to decline in prices for banking systems and productivity growth that is profitable to the whole economy. Reforms too improve the quality, access, and variety of new financial services and instruments. Involvement of the government in the financial sector contributes to improved global allocation of resources because of the removal of the barriers to intercontinental capital flows. All these reasons justify that the government really has to intervene in the daily operations of the banking industry. 2. Investing banking activities Leading cash centers in the United States have accelerated their investment banking activities all over the world in recent years, purchasing corporate debt securities and stock from their business customers and reselling those securities to investors in the open market. This is beneficiary to the organizations, since efficiency can be gained by purchasing stocks that are underperforming, improve their performance, and sell them for a profit. It is also ...Show more

Summary

Money and Banking Name Institution Money and Banking 1. The role of government in the banking industry Government involve in the industrial affairs for many reasons. For instance, its role in the banking industry originates from microeconomic matters over the capability of bank depositors or creditors to monitor the risks brought about by the lending side and from macro and microeconomic concerns…
Author : jeanne21
Money and banking essay example
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