Answer to Question #227317 in Economics for IBRAHIM

Question

1.      Discuss the reasons for regulatory failures in banking. Use examples to illustrate answer
2.     Discuss the key roles of central banks in ensuring financial stability
3. Explain the “three lines of defence” in risk management
4. Briefly discuss the 03 types of banking regulations

Answer 1

1. Some failures may be mostly due to failures in industry self-regulation, where the actual regulatory failure may be mostly about failing to validate the industry's own efforts. Ultimately, one could say that failure was to do with the occurrence of a 'manifestation of harm'.

2. Central banks carry out a nation's monetary policy and control its money supply, often mandated with maintaining low inflation and steady GDP growth. On a macro basis, central banks influence interest rates and participate in open market operations to control the cost of borrowing and lending throughout an economy.

3. In the Three Lines of Defense model, management control is the first line of defense in risk management, the various risk control and compliance oversight functions established by management are the second line of defense, and independent assurance is the third.

4. Bank regulation falls within the next basic categories: the government safety net, restrictions on bank asset holdings, capital requirements, chartering and bank examination, assessment of risk management disclosure requirements, consumer protection and restrictions on competition.