Question

identify and discuss regulations aimed at preventing financial instability.

Answer 1

The banking system often faces stiff competition resulting from the economic advancement and advancement of transactions involving banking and loaning procedures. Essentially, advancement in technology-facilitated devising of accommodating features enhances accessibility services to potential customers regardless of the location. Therefore, the development called for the innovation of regulations aimed at preventing financial instability. To begin with, banks need to develop market confidence which enhances the learning of the merits and demerits associated with the financial system hence creating stability (Raberto & Marco et al., 2019). Also, the policies developed by the financial institutions should be customer-based to protect consumers of diverse services.

The establishment of hedge funds ensures financial institutions trade with credit derivatives hence supplying risk capital and recognizing credit risks incurred by individual investors. Explicitly, a discount certificate may establish a floor in a stock market index, whereby certainty is established for individual investors. Hedge ensures stability by offering credit services to investors willing to take high risks when the economy is destabilized to contain the challenges encountered (Raberto & Marco et al., 2019). Devising approaches that enhance consumer literacy and restrict consumer leverage ensures that financial expenditures are carefully utilized by consumers of services, enabling them to adopt informed decisions.

The setting of standards for financial solidity ensures the financial institutions have the capital adequacy expectations for banks; this ensures there is a capital endowment percentage set aside. Additionally, risks and different types of claims are differentiated, ensuring that banks rate and standardize their internal control measures (Raberto & Marco et al., 2019). Notably, the introduction of financial crisis achieved through imposing dividend restrictions offers opportunities whereby government capital support offered promotes diluting of shareholders. Designing an integrated regulatory structure and bank governance and culture ensures that developed policies are not violated in relevance to financial stability.

Work Cited

Roberto, Marco, et al. "From financial instability to green finance: the role of banking and credit market regulation in the Eurace model." Journal of Evolutionary Economics 29.1 (2019): 429-465.

https://link.springer.com/article/10.1007/s00191-018-0568-2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The banking system often faces stiff competition resulting from the economic advancement and advancement of transactions involving banking and loaning procedures.