Question

Banks are one of the most regulated institution in the world. There is a set limit of how much they can be exposed in off-balance sheet activities and capital market. Many experts argue that limiting the banks from doing these businesses are unfair and it hampers the growth. You should argue both for and against the regulations that limit the banks from risky undertaking.

Answer 1

Arguments for limiting the exposure of bank-

A. The bank's exposure should be limited to the risky asset because they are the backbone of the economy and they should be thoroughly managed.

B. the bank should always be responsible for management of the depositors money and it should not be landing recklessly

C. the bank should always be following up with the monetary policy and it is responsible for management of the money flow into the economy so it should must be following up with the required rules and regulations.

Arguments against limiting the exposure of the bank-

A. It will reduce the landing capability of the banking industry

B. It will reduce the overall gross domestic product associated, because the growth rate would be minimised

C. This is arbitrary as the demand of the customer should be properly met by the bank, if it is capable to provide the loan.