The following will be discussed in this chapter: Why and how should banks be regulated? how a bank earns profit? safety and soundness, CAMELS, what are banking regulations? potential problems in bank, criticality of banking system, investment banks,. | MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF Session: FOURTEEN Revision session 1 SECTION 1 Why and How Should Banks Be Regulated? The health of the economy and the effectiveness of monetary policy depend on a sound financial system. Through supervising and regulating financial institutions, the State Bank is better able to make policy decisions. 4 Why and How Should Banks Be Regulated? (Contd.) Bank supervision involves monitoring and examining the condition of banks and their compliance with laws and regulations. If a bank under the State Bank’s jurisdiction is found to have problems or be noncompliant, the State Bank may use its authority to request that the bank correct the problems. 5 Why and How Should Banks Be Regulated? (Contd.) Bank regulation includes issuing specific regulations and guidelines to govern the operations, activities and acquisitions of banking organizations. 6 How a Bank earns Profit? Just like any other business, a bank earns | MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF Session: FOURTEEN Revision session 1 SECTION 1 Why and How Should Banks Be Regulated? The health of the economy and the effectiveness of monetary policy depend on a sound financial system. Through supervising and regulating financial institutions, the State Bank is better able to make policy decisions. 4 Why and How Should Banks Be Regulated? (Contd.) Bank supervision involves monitoring and examining the condition of banks and their compliance with laws and regulations. If a bank under the State Bank’s jurisdiction is found to have problems or be noncompliant, the State Bank may use its authority to request that the bank correct the problems. 5 Why and How Should Banks Be Regulated? (Contd.) Bank regulation includes issuing specific regulations and guidelines to govern the operations, activities and acquisitions of banking organizations. 6 How a Bank earns Profit? Just like any other business, a bank earns money so that it can run its operations and provide services. First, customers deposit their money in a bank account. The bank provides safe storage and pays interest on customers’ deposits. The bank is required to keep a percentage of deposits in reserve as cash in its vault or in an account at The State Bank. 7 How a Bank earns Profit? (Contd.) The bank can lend the rest to qualified borrowers. Potential borrowers may wish to buy a house or a new car; However, they may not have enough money to pay the full price at one time. Instead of waiting to save the money to pay for a new house, which could take years, they take out a loan from a bank. Borrowers are charged interest on the loan – a bank’s primary source of income. Banks also make money from charging fees for other financial services, such as debit cards, automated teller machine (ATM) usage and overdrafts on checking accounts. 8 Safety and Soundness Two major focuses of banking supervision and regulation are the safety and .
