Regulatory Framework of Financial System

3642 Words Aug 11th, 2015 15 Pages
Assignment: Discuss the idea that banks will continue to fail even in the presence of supervision clearly articulating what constitutes supervision and regulation for the financial system as well as the rationale for regulating the financial system.
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What constitutes supervision and regulation for the financial system?
Banking supervision and regulation provides a forum for regular cooperation on banking supervisory matters; its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision

The core principle for effective banking supervision addresses supervisory requirements relating to banking licensing. The
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Assessing proposed directors and managers at the time an application for licensing is processed is a good way of blocking entry to those that show signs of not being fit and proper. This should serve to reduce the risk of failure due to mismanagement.
Board Member and Managerial Characteristics: The board has the responsibility for setting the strategic direction of the bank, appointing senior managers and overseeing the operations of the bank. The applicants for a banking license should demonstrate that the members of the board will, collectively have the qualifications and expertise to direct the bank’s proposed business. The board is expected to consist of people with diverse business, financial and professional interests. The Supervisor should therefore seek to assess the board of directors in terms of integrity and capabilities. Similarly, senior managers should exhibit the necessary skills and experience to manage and implement the bank’s business plan. In addition, they should exhibit personal traits of honesty and integrity such as required of the board of directors.
Ability to Effectively Supervise: Supervisory authorities should have the authority to prevent corporate affiliations or structures that hinder the effective supervision of banks. These include: structures where material parts are in jurisdictions where secrecy laws or inadequate financial
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