Question

Identify the important risks that banking regulation seeks to manage

Answer 1

Answer:

The important risks that banking regulation seeks to manage are:

-- Legal risk may result to financial or reputational loss due to lack of awareness or misunderstanding of, ambiguity in, or reckless indifference to, the way regulation, rules and law are applicable in banking, its relationships, processes, and services.

--Legislative risk, also known as political risk, occurs due to an amendment, inaction or abolition of one or more laws that may directly impact banking sector. Thus banking regulation seeks to hold the potential of sustaining a loss on an investment as a result of government action.

--The moral hazard concern of deposit insurance comes because the protected depositors have no incentive in monitoring the bank's. Knowing the fact, bank managers usually takes higher risk asset positions. Therefore, the deposit insurance creates its own moral hazard risk

-- Non-compliance with regulatory requirements will have a major impact on the brand reputation of the bank. Large banks seek to deal with multiple jurisdictions and multiple timetables for new banking regulations. There are higher penalties for non-compliance thsu banking have to vigilant about it