Question

• Identify three ways that banks impact the economy. Include clear examples and well-defined reasons.
• Identify two regulations and describe their origin and role in managing risks within banks.
• What risk management standards did the banks employ as a result of the regulations?
• What are the consequences of failing to meet the standards outlined by the regulators?
• Would a firm be prudent to properly manage its leverage and liquidity levels if they are not regulated? Why or why not? What tools can organizations employ to manage the risks caused by inadequate levels?

Answer 1

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Identify three ways that banks impact the economy. Include clear examples and well-defined reasons.

Banks have consistently assumed an essential job in the general growth and improvement of any nation.

They assume an unequivocal job and fills the growth of any economy. Be it any sector, the whole destiny of exchange and business is subject to the banking business, and along these lines banks are viewed as the foundation of any economy.

Regulation of Banking Activities

Since banks are the supporting of a cutting edge economy, governments normally have laws set up to keep banks from taking part in risky exercises that could compromise the economy.

These laws are regularly instituted after hard money related exercises, for example, the production of the Federal Deposit Insurance Corporation (FDIC) in 1933 after the bank frenzies of the past 50 years. Be that as it may, such laws are battled against by banks and are some of the time evacuated, and this has prompted history rehashing itself.

Banks play 2 more important roles,

They serve to give loans that permit a lot of consumption and investment to happen and they increment the flexibly of money.

Loaning money is an immensely significant action for the economy. Individuals will in general need to acquire money to purchase huge things like vehicles and homes. Banks loan the money that permits them to do this, along these lines permitting significantly more economic movement than would happen if individuals needed to just hold up until they had enough money close by to purchase such things. Organizations for the most part need to obtain money to grow or redesign their ability. Banks loan money to permit them to do this. In the event that banks didn't do this, organizations would not have the option to develop so a lot and the economy would endure.

By loaning, banks are likewise extending the money gracefully. They can take deposits and, generally, loan them out again and again. This implies a given measure of money, deposited in a bank, can transform into significantly more money (as much as multiple times more) than was deposited. By loaning, banks make more money that, as portrayed above, permits progressively economic movement to happen.

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