Fins5512 Financial Marketing And Institutions Assessment Answers
Banking Activities
Answer
Forms of protection and regulation imposed by regulators of CBs to ensure their safety and soundness, while indicating how separation of commercial banking and investment banking activities evolved through time:
From the evaluation it could be identified that CBs has issued several guidelines to insure safety and soundness in their regulations. CBs in protecting the interest of borrowers and depositors against risk of failures are imposing layers of regulations. The segregation of a commercial banks and investment banks mainly help in differentiating their operations (Calomiris & Nissim, 2014). The guidelines and layer of regulations are depicted as follows.
- CBs needs to conduct diversification in their assets by not concentrating their holding in assets.
- In addition, the regulators have also set up guaranteed funds such as BIF for commercial banks
- Regulators also conduct periodic monitoring and surveillance of firms.
- Lastly, the specific 8% supplement capital of 8% needs to be maintained for their risk adjusted assets.
In addition, the major separation between commercial banking and investment banking are relatively depicted from Banking Act. Moreover, the banks are allowed to continue with new issues of Treasury bill, notes, and bonds, which is not imposed by investment banks. Furthermore, banks are also allowed to continue underwriting municipal general obligations bonds. Lastly, banks can continue engaging with private placements of equities, bonds, corporate and noncorporate. The segregation of banking activities and investment activities has been conducted by regulators after the implementation of Banking Act 1933, which helped in formulating different investment banks such as JP Morgan. In this context, Sarker & Rashid (2015) stated that segregation of the operations of banking and investment regulation has helped in reducing the unethical measures taken by financial institutions in increasing their profit from operations.
References:
Calomiris, C. W., & Nissim, D. (2014). Crisis-related shifts in the market valuation of banking activities. Journal of Financial Intermediation, 23(3), 400-435.
Sarker, M. N. I., & Rashid, M. H. O. (2015). An impact of banking activities of private commercial Islamic bank to economic development in Bangladesh: a case study on First Security Islami Bank Limited (FSIBL). Journal of Investment and Management, 4(5), 264-272.
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