Answer to Question #66301 in Finance for Abdul

Question

There is a noted emphasis on bank regulation by the central bank in the recent past. Discuss the reasons for bank regulation.

Answer 1

Bank regulation is a form of government regulation which subjects banks to certain requirements, restrictions and guidelines, designed to create market transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things.
The objectives of bank regulation, and the emphasis, vary between jurisdictions. The most common objectives are:
1) prudential — to reduce the level of risk to which bank creditors are exposed (i.e. to protect depositors);
2) systemic risk reduction — to reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures;
3) to avoid misuse of banks — to reduce the risk of banks being used for criminal purposes, e.g. laundering the proceeds of crime;
4) to protect banking confidentiality;
5) credit allocation — to direct credit to favored sectors;
6) it may also include rules about treating customers fairly and having corporate social responsibility.
Reference:
https://en.wikipedia.org/wiki/Bank_regulation#Objectives_of_bank_regulation