Question

Analyze how a government regulates and supervises the financial system to contain risk.

Answer 1

The Government imposes a bank regulation, which is a financial regulation imposed by the government on the banks of the financial system which includes to meet restrictions, requirements and guidelines that would ensure transparency between the corporations and institutions as well as people.

The regulations are in the form of :

• Licensing
• Supervision

Getting a legal license is the first step towards starting a new bank.  Licensing involves an evaluation of the entity's intent and the ability to meet the regulatory guidelines governing the bank's operations, financial soundness, and managerial actions. The requirements may include minimum capital requirements, minimum number of directors, residence of shareholders, spread of shareholdings, disclosure of beneficial shareholders.

A national bank regulator imposes requirements on the banks to promote the objectives of the regulator. Supervisory activities involve on-site inspection of the bank's records, operations and processes or evaluation of the reports submitted by the bank.