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Approaches to banking regulation - Essay Example
Author : rosalee68
Finance & Accounting
Pages 5 (1255 words)
Current changes in the banking sector, as well as banking crises, have caught the attention of policy makers and industry participants on the most appropriate way and strategy to adopt for banking supervision and regulation…
As the search for the best supervision and regulation approaches continues, it is essential for the involved countries to conduct thorough assignments on the fundamental principles to employ in order to attain financial system stability and growth (Barth et. al. 2004, p.208). This paper looks into two banking regulation approaches, which are the ring-fencing and total separation strategies.
Approaches to banking regulation
Ring-fencing is a strategy that structurally distinguishes retail banking activities from wholesale and investment bank activities. Ring-fencing mainly focuses on ensuring that provision of services is not interfered with in case of a bank’s failure. Secondly, ring-fencing aims at making it easier and less costly in resolving banks. Thirdly, this approach controls incentives for excessive risk-taking. Apart from the three main objectives of ring-fencing, this approach offers several benefits such as insulating vital UK retail bank services from global financial crises, it allows for an easier monitoring of banks under ring-fencing and in a much transparent way. The other possible benefit is the ability to promote competitiveness because UK retail banking can be made safer (Bertsch 2012, p.2).