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Finance & Accounting
Pages 13 (3263 words)
Running Head: STRATEGIC BANKING ISSUES Strategic Banking Issues Regulations and Profitability [Name] [Course] [Professor’s name] [Date] Experts in the banking industry blame failure of regulation as one of the main causes of the 2008 global financial crisis…
There is a strong correlation between financial sector development and economic growth. Economic growth generates demand for financial services and spurs financial sector development. A developed financial sector is very useful in allocating resources and promoting economic development. The world before the crisis had easy liquidity, stable growth, and low inflation. Everyone expected that the things will remain like this forever and the financial sector will continue to pile up profits by sheer financial engineering (Subbarao, 2011, p.2). Now new regulation has been proposed and regulation comes with associated costs. A BIS study estimates that a one percentage point increase in the target ratio of tangible common equity (TCE) to risk-weighted assets (RWA) phased in over a nine year period reduces output by close to 0.2 per cent (Subbarao, 2011, p.2). Noted economist Paul Krugman has said that, the way to reform banking is to make it boring once again (Subbarao, 2011, p.6). In this paper we are going to look at the issue of financial regulations and banking sectors’ response to such regulations to maintain their return on equity. Causes of Global Financial Crisis of 2008 There is a host of ideas about the probable cause of the financial crisis. The classical explanation is very clear. Financial crisis are the result of monetary excesses. ...
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