An integral part in determining a country’s economical status, bank regulations have been enforced in almost every country in the world through its government. These regulations protect banks from bankruptcy and humiliation. For individuals and corporations, these regulations provide clear guidelines on investments, trading and stocking etc. Thus both parties are saved from any potential losses by following this part of best practices with banking.
The first and foremost tool of regulations applied on banks is limiting. There must be limits set upon the amount of capital investments a bank is about to make. Credit history of the loan taker should be studied to make sure that the debtor will be able to return his loan on time along with the interests raised.
Keeping an adequate reserve in the bank will assure the banking authorities that in times of economic distress, the bank will be able to bail itself out of any kind of worst case scenario. If a bank does not have enough funds within its holdings, it could easily go bankrupt and take its customers down with it, leaving them penniless and distraught.
Bank regulations state that according to best practices, a bank must always look out for its customers because it is their money that’s being invested on projects or given out as loans. And it is the bank’s responsibility to ensure the safety of their prime assets.
A bank’s reputation entirely amounts up to the credit rating it possesses. Therefore, a bank possess minimum credit rating to avoid being closed down by credit agencies who will deem it unsuitable for running in the economy. A bank does not only affect single individuals or corporations but also the economy as a whole in an indirect way.
Failure to comply with bank rules set up by the government can also bring about global impacts affecting banks all over the world e.g. the European Banks of Greece and Portugal etc.