Bank Regulation -The Way Forward Since the

Bank Regulation -The Way Forward Since the recession hit the U.S.A. And the effect felt across the globe, there has always been the debate on the role that the banks and the banking system played in occasioning, perpetuating and even failure to stop the recession.

Despite the various regulations that exist in the banking system, there are still massive failures like the failure to understand the new business models, inability to monitor and test banks Risk analysis and management systems, regulations allowed banks to hold assets and loans off balance sheet without capital backing and overreliance on capital regulation to reduce the probability of banks to fail. Indeed most banks that failed had capital in excess (Mark Carney, 2010).

Our group met and having considered the situation above and the current trend in the banking industry, we came up with consensus that the banking industry needs regulation and very specific kind of regulations that can help lower the probability of bank failure as well as reduce the cost of those failures that will always occur from time to time.

The following are the various recommendations that our group came up with in a bid to have working regulation that can help the banking system; There is need for structural regulation, i.e. put a cup on the allowable business that the banks that are considered too big to fail (TBTF) can engage in. This way it will be easier to monitor their activities on a regular basis and score them regularly to see their stability.

There is also need for behavior regulation, with the adjustment of the capital requirements as well as the liquidity requirements upwards, there will ne lesser chances of bank failures. There is also need to put in place intervention measures that are designed to view banks as constant concern and upon detection of a deteriorating position of the bank then the supervisor can impose an appropriate remedial action.

One of such interventions that are a significant incentive for prudent behavior is the structural early intervention and resolution regime (SEIR) which can work very well in avoiding bank failures as was experienced there before (IMF, 2011). The banks should also have a mandatory insurance measure that will see the banks compensate for the past bails as well as cushion themselves and in effect the clients against future failures.

They should pay the ex-post costs in order to recoup the costs of the past bailouts or taxes so as to have a firm financial foundation as well as the future costs referred to as ex-ante or the insurance in order to make remote the possibility of future interventions (Arup Daripa & Simone Varotto, 2006). There is need to have regulations that help to lower the cost of bank failures especially towards the tax payers.

This can be achieved by keeping the risks that may be faced by a bank private rather than making them social by shifting the risks to the tax payers as has been the situation hitherto. A comprehensive network is also needed among the banks. This will enable the banking system as a whole adopt a stable trend as adopted from the other stable banks within the network.

This is in the face of the fact that individual banks could be safe and following all the regulations that are set, but the entire system may be at risk in entirety, this can only be solved at the network levels otherwise even the stable bank could be at risk of failure together with the system. In this network, the banks that are seen to be systematically significant should have differential capital ratio applied to them.

At the same time, the structure and the operations of this network need to be closely supervised. To guard against counterparty risks within the network, there is need to have the derivative trade conducted through a central exchange medium agreed upon by the member banks. The banks also need to have a regulation on the type of businesses that they can engage in. apart from that, there is need.