Question

Why are banks being more regulated than your normal business would be? How do we regulate them?

Answer 1

Solution:-

To control the economic activity of a nation and to protect individuals trusts, banks are requires to be regulated. Commercial banks are generally owned by private entrepreneurs and the main motive is to obtain higher profit, either by providing more loans or by generating more credits. Generating more credits may take the economy into inflation or depression. So for economic stability and for external security of the nation, commercial banks are regulated by the monetary authority.

Banks are regulated by the monetary authority or the central bank of a nation. A central bank usually controls all of the financial institutions by issuing some terms and conditions. A central bank regulates the commercial banks with the collision of the government.

A central bank uses the tools like licensing and supervision, minimum requirements, capital requirements, reserve requirement, credit rating requirement and many more to regulate the commercial banks.

Minimum capital requirement:

It is necessary for banks to keep minimum capital requirement because they can handle the capital in relation to the assets. Commercial banks accept deposits and grants loans to needy people and by doing so they generates profits. But to protect peoples saving and to catch the hairs of commercial banks, they are required to deposit the minimum capital in central bank.