SaravananPanneervelPCA54001(TTH)ArgumentativeEssayDraft1(12thSep.

2012)

AnIdealSituation:FreeEnterpriseSystemAlongWithRegulatedBanking TheU.S.economyisafreeenterprisesystemwhichmeanseachindividualis entitledtoearnprofits,ownprivateproperty,competeinamarketplaceforbusiness andmakeeconomicdecisionsforthemselves.Insuchasystemsomepeoplearguethat regulationofeconomyandeconomydrivingentities,suchasbanks,mayaffecttheU.S. freeenterprisesystem.HenryDavisThoreau,aninfluentialfigureinAmericanthought andliteratureandaproponentoflaissezfaire,said:Thatgovernmentisbestwhich governsleast;andIshouldliketoseeitacteduptomorerapidlyandsystematically. Carriedout,itfinallyamountstothis,whichalsoIbelieveThatgovernmentisbest whichgovernsnotatall;andwhenmenarepreparedforit,thatwillbethekindof government.Ifwespeakofbanksinthecontextofregulationorderegulation,Ifeel thatregulationofaneconomicentitylikeabankwouldnotonlyprotectdepositorsbut also secure national monetary stability, preserve an efficient and competitive financial systemandprotectconsumerinterests. Businessesandindividualsholdasignificantportionoftheirfundsinbanksand use banks primarily for carrying out financial transactions and issuing and realizing cheques.Forconductingsuchtransactionstheymustmaintainadepositwithabank. Althoughpartialsafetyofeachdepositaccountisprovidedthroughcashandbalancesin thefederalreserve.Partsecurityofadepositalsodependsonthebankscapitaland conditionandvalueofitsloansandassets.Bankscanuseitsdepositstoprovideloans whichattheendmaynotrealizecashforbanksleadingtolossofdepositsofthe customers.Topreventsuchsituations,regulationsonmaintenanceofadequatecapital, Depositinsuranceandlendingandinvestmentrestrictionsareimposed. Considering that a vast volume of transactions are conducted every day by individualsandbusinesses,asafeandacceptablemeanofpaymentsiscriticaltothe safetyofthecustomersmoneyandhealthofnationaleconomy.Regulationsprovidea stableframeworkandsafechannelformakingpayments.Whenbankslendmoneythey need to ensure that they have mitigated the risks of lending the money of their depositors.Ifthemoneyisnotreturnedthebankwillbeindebtofthedepositor whichwillleadtoamonetaryimbalanceinthesystem.Thereforethegovernmenthas regulationsandcreditchecksystemsinplacesothedepositorsmoneyissafewhen bankslendmoneyandstabilityismaintainedintheinterestofthenation. Banking regulations are necessary to give opportunities to mid and small size bankstogrowinacompetitiveenvironmentandpreventmonopolizationbylargesize banks.Itisalsonecessarythattheregulationsshouldnotneedlesslyrestrictactivitiesof

SaravananPanneervelPCA54001(TTH)ArgumentativeEssayDraft1(12thSep.2012)

commercial banks resulting in a competitive disadvantage. Such regulations would be adaptivetosituationbasedeconomicconditions.Incaseofalaissezfairemindseta bankwithanaddedadvantagewillworktowardsmonopolizationsinceprofitsarethe soleobjectiveofabusinessentityandtherewouldbenoregulatorybodytoencourage competition. Sincebankingactivitieshavebecomeavitalpartofdailylifethemostimportant reasonwhybanksshouldberegulatedisforconsumerprotection.Itwoulddefyalllogic ifbankswerenotliabletohavetermsandconditionsfordepositsmadeinthebanks andconsumerwouldalwaysstayinfearofwhatishappeningtotheirmoney.Therefore thebanksareregulatedandmandatedtoprovidedisclosureofdepositandcreditterms. Suchdisclosurewillgiveconsumerknowledgeandabasistomakingchoicesbetween differentfinancialinstitutionsofferingacompetitiveadvantage.Apartfromdisclosureof termsandconditionstherearemanyregulationsthatmaintainconsumerinterestssuch asfinancialprivacyandreportingofpersonalcredithistories. Iconsidermyselftobeaconsumerofproductsbankshavetoofferanditisin mybestinterest,asaconsumer,thatbanksberegulatedforthesafetyofmyhard earnedmoney.Asacounteropinion,basedonthesupportintheessay,toThoreaus opinionIwouldliketoemphasizethatAgovernmentthatregulatesbankingactivities willnotonlypreservethefreeenterprisesystembutalsoprovidesupporttogrowthof allratherthanthepowerfulfew. ListofRefernces: 1. Kenneth Spong (2000).Banking Regulation: Its Purposes,Implementations and Effects.DivisionofSupervisionandRiskManagementFederalReserveBankof KansasCity.Retrievedfromhttp://www.kc.frb.org/ 2. RegulationVs.Deregulation(2012);www.apatheticvoter.com 3. PeterJ.Wallison(2006).WhydoweRegulateBanks.WallStreetJournal. 4. JamesR.Barth,JieGanandDanielE.Nolle(2009).GlobalBankingRegulation& Supervision: What Are the Issues and What Are the Practices? Nova Science Publishers,Inc.