Identifying and Suggesting Various Recommendations that make a Banking System Stronger (Essay Sample)

A Good Banking System
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A Good Banking System
In the aftermath of the Global Financial Crisis of 2007, several countries realized the need to establish secure banking systems that would withstand any such financial meltdowns in the future (Vaccaro, 2013). According to Brigo, Pallavicini, and Torresetti, (2010), most reforms in the banking system focus on increasing transparency of banking transactions, reducing risk, and contributing to economic growth based on strong monetary policies. This essay will outline recommendations for a healthy banking system that can outlast the effects of economic crises such as the one experienced globally in 2007-2008. These recommendations will draw strongly from foundations of some of the best banking systems in Canada and Europe. Canadian banking system, in particular, is one of the soundest models for banks (Brigo, Pallavicini, & Torresetti, 2010). It’s ranked first World Economic Forum, an achievement it has enjoyed for the past six years in a row (Vaccaro, 2013).
The banking sector has experienced three major crises that have shaken up the economies and affected livelihoods of many people in the world (Calomiris, 2009). The first crisis occurred in 1866, followed by another crisis between 1929-1931 during the Great Depression, and more recently during the Global Financial Crisis of 2007-2008 (Vaccaro, 2013). The 2007 Global Financial Crisis is regarded as one of the worst financial crises in the world since the 1930s during the Great Depression (Calomiris, 2009). The financial crisis, which began in mid-2007, was characterized by a collapse of leading financial institutions, a bailout of banks by governments, breakdowns of stock markets, prolonged unemployment, and collapsing of the housing market (Calomiris, 2009). This situation led to failure of many businesses, reduced economic activity around the world, and a widespread liquidity crisis. According to Vaccaro (2013), the Financial Crisis could have been avoided if governments had strong banking systems to safeguard their economies through such hard economic times. The Global Financial Crisis resulted in many countries reforming their banking systems to protect their economies from future economic crises (Brigo, Pallavicini, & Torresetti, 2010).
The banking system in Canada is considered as the safest banking model in the world (Brigo, Pallavicini, & Torresetti, 2010). Canadian banks, also known as chartered banks, have about 8000 branches with over 18000 Automated Banking Machines (ABMs) located in various parts of the country (Calomiris, 2009). The banking system in the country also boasts of one of the highest levels of penetration of electronic channels such as telephone banking, internet banking, and debit cards (Calomiris, 2009). During the Global Financial Crisis, the Bank of Canada, in collaboration with the Canada Mortgage and Housing Corporation, supported the banks in Canada to stand firm amid the economic challenges (Calomiris, 2009). Therefore, any good banking system elsewhere in the world should borrow a lot from the Canadian model, as well as incorporating other best practices from other countries.
A good banking system, therefore, should among other things be transparent (Calomiris, 2009). Banks serve the public and should, therefore, act in the interest of the public. The banks should act in a transparent manner where the public can easily understand the banking processes and how to access funds (Vaccaro, 2013). Transparency will boost the trust of the public in the banking institution; thereby ensuring the banking systems expands faster (Calomiris, 2009). Transparency also has to do with ethical practices of banks and the banking system in general. Banks should avoid getting involved in unethical practices such as money laundering, supporting illegal businesses, and charging unfair interest rates among others as these are likely to affect the economy (Calomiris, 2009).
A sound banking system should also be responsive to the needs of the people (Vaccaro, 2013). This implies that the banks should promote activities such as creating employment, supporting businesses, encouraging sound financial management processes among the people, and protecting the finances of individuals (Vaccaro, 2013). The banks should also give excellent customer service that enables the people to access banking services promptly (Calomiris, 2009). This will substantially contribute to economic development and empower people to manage their finances efficiently.
Another recommendation for a good banking system is the integration of technology. Technology is one significant development that can revolutionize the banking industry (Vaccaro, 2013). Technology in the banking sector involves issues such as internet banking, telephone banking, and use of debits cards. Technology is the backbone of the banking system in Canada and has contributed to improved service delivery to the Canadian people (Brigo, Pallavicini, & Torresetti, 2010). Technology will help people access banking services with ease, eradicate un...