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Last week you learned that financial engineering and conflicts of interest have both increased the bank's...

Last week you learned that financial engineering and conflicts of interest have both increased the bank's risk profile. How have rules and regulations reduced conflicts of interest and the risk profile of the bank?

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Answer:-

Rules and regulations help in different ways to reduce the conflict of interest and risk profile of the banks:

1.   Clarity of guidelines regarding accepting or rejecting proposals made by the borrowers on the basis of scientific techniques such as determinant analysis and psychometric evaluation
2.   Slowly and progressively conversion of non-profitable assets into either profitable assets or writing off over a period of time as per the regulations.
3.   Training of employees regarding the corporate governance and encouraging a whistleblower policy inhibits people who create risk for the bank.
4.   Rules and regulations also contribute to the development of robust operational risk management framework that helps in reducing the risk profile.?

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