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Finance & Accounting
Pages 6 (1506 words)
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.
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). ...
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