Question

Impact of Regulation and Deregulation on Financial Services

Carson Company relies heavily on commercial banks for funding and for some other services.

1. Explain how the services provided by a commercial bank (just the banking, not the nonbank, services) to Carson may be limited because of bank regulation.

2. Explain the types of nonbank services that Carson Company can receive from the subsidiaries of a commercial bank as a result of deregulation. How might Carson Company be affected by the deregulation that allows subsidiaries of a commercial bank to offer non-bank services?

Answer 1

Banks have many limitations when it is regulated. They (Commercial Banks) are bounded to provide fixed line of services and products to their customers or other financial services companies. For example, Commercial banks, if regulated, can not open more than one branch in an area of 50 Sq. Km or can not reduce the interest rate charged on the Business loans.

Following are the non-banking services that Carson Company can receive from the commercial bank as a result of deregulation:

1. No Limitation on the depositing of funds into a personal account both in terms of number of transactions and total capital transacted.

2. Issuance of Currencies at an unprecedented low rate, forcing other players to reduce too for avoiding the monopolistic and in turn, damaging the overall revenue of the sector.

   

Impact on Carson Company from the deregulation, allowing the Commercial banks to offer non-banking services can be described below:

1. Deregulation will create humongous number of players to enter in this line of business, creating huge competitions to Carson Company thereby impacting earnings directly.

2. The Company can also impacted from the innovations in the products and services offered by the other companies in this domain.

3. It may see an increase in the corruption in the company and the system.

4. Reduced earning, increased competitions and formations of many shell or shadow companies may force Carson Company out of the Business or led to the bankruptcy.

So, the above explanation can very well provide a description of the impact of regulation and deregulation of the banking and non- banking sector on the financial services domain.