International Banking and Financial Law (Essay Sample)

INTERNATIONAL BANKING AND FINANCIAL LAW
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TABLE OF CONTENTS TOC \o "1-3" \h \z \u INTRODUCTION PAGEREF _Toc290882346 \h 3FUNCTIONS OF CENTRAL BANKING PAGEREF _Toc290882347 \h 3PAYMENTS SYSTEM PAGEREF _Toc290882348 \h 5CONSUMER PROTECTION PAGEREF _Toc290882349 \h 6SAFETY AND SOUNDNESS PAGEREF _Toc290882350 \h 6LEGAL ISSUES THAT ARE PREREQUISITES FOR COMMERCIAL BANKS WHEN SUPERVISED BY CENTRAL BANKS PAGEREF _Toc290882351 \h 8CONCLUSION PAGEREF _Toc290882352 \h 12BIBLIOGRAPHY PAGEREF _Toc290882353 \h 13
INTRODUCTION
The central banking has become truly remarkable at many countries over the world as a system for providing issuance, delivery and expected payments mechanism. Though these benefits have been cited as being important many issues remain as to whether these banks follow the rule of bringing customization, whether readily providing guidance on investor protection and economic growth can be attributable (Bruna, 2011, p. 23-37). The issue of control and issue of developing power for the central banks have caused many debates that probably indicate the dearth of critical views on banking and banking law, where these systems have been accepted as being the necessary for development and growth of an economy (Westerfeld & Weber, 2009, p. 65-82). The paper studies the necessity of procedural implications at central banking and supervision over commercial banks. The banking system attributes are heavily debatable and there is no end to ascribing whether banks could be taken as suo Moto legally implementable reform agenda for economy and investments.
FUNCTIONS OF CENTRAL BANKING
* Keeper of Government Funds.
* Providing credit to commercial and subordinate banks.
* Determining the Statutory Liquidity Ratios.
* Maintaining monetary policy guidelines.
* Providing regulations in Banking Supervision.
* Need for a payments mechanism.
* Consumer Protection.
* Safety and Soundness.
Banking Regulations and Commercial Banking laws were initiated by the governments for detailed rules and needs for bringing the credit to development projects and loans. The ability of central banks in being directly or effectively directly being under the control of government has been indicated as the reasoning for a suitable and reasonable funding source which has been important in bringing government finances in times of war and calamity to an effective planned implementation. While central banks have been known to allow funding at below market interest rates the governments could and frequently have been using such powers in many countries with different products like demand deposits and checking privileges. This was developed from using charters from government and providing credit allocations. Some governments have viewed banks to be revenue based and profit making (Yardimcioglu & Kendirli, 2009, p. 35-45).
The privately-owned savings and loan associations to channel funds to residential mortgage market by encouraging the institutions to make long-term 20 to 30 year fixed-rate mortgages financed from short-term variable-rate federally-insured deposits. These institutions assumed very large interest rate exposures and were "an accident waiting to happen" if interest rates rose sharply, which they did in 1970s. This increased their costs but left revenues basically unchanged. The aggregate losses from the subsequent insolvency of many of the institutions exceeded the resources of the government insurance agency and required an infusion of some $150 billion of public or taxpayer funds. Similar structures exist in many countries for similar reasons and are kept in operation only by government guarantees to the depositors (Verhage, 2009, p. 113-133).
The credit standards applied to other groups do not apply as easily to these groups, e.g., employment turnover may be more frequent but net unemployment no longer and relevant "family" income may include more extended family members than for more traditional borrowers. As a result, these groups are perceived to be either be unfairly denied credit or charged higher interest rates than may be socially warranted for credit or the borrower can afford. Since banks receive special charters from the government that are valuable, they are perceived by some to owe an obligation to serve the community in which they are chartered.
One can ascribe better regulation in competition and prevention of excessive concentration in resources to be maintained by the Central Banks. There is no current evidence both theoretically and empirically to have proved a natural monopoly for the central banking function. Governments often restrict entry of new competitors to foster monopoly and enhance profitability of the central banks. Thus, bank charters are frequently operating with monopolistic value. Regulation generally appears to have restricted competition in banking rather than to have developed it.
PAYMENTS SYSTEM
Banking operations are maintained within the developed wholesale payments system which is featured by clearing and settlement of checks, credit and debit cards, and large-value electronic interbank transfers. An efficiently operating payments system is a necessary prerequisite for development of performing economy and breakdowns within the payments system are likely to significantly reduce trade and also aggregate income. In the absence of a relevant system government intervention may be necessary to development of the basic infrastructure for the payments system. There is little evidence to support for a continued government function of control over central banks lender of last resort function that provides emergency liquidity to the banking system, improving either efficiency or safety. Private banking establishments that provide this service would be more inclined to demand an appropriate compensation, full collateralization, or transfers only in good funds to reduce their potential for losses. Thus regulation may prove to be efficient in the payments system but that level of expertise may well extend beyond banks and again a consumer protection issue. Therefore the ability of providing some protection against fraud in credit card systems implies requisite bonding or periodic examination of providers (Lapper & Cruz, 2009, p.77-81).
CONSUMER PROTECTION
"More sophisticated" bankers may take advantage of "less sophisticated" bank customers and force them into commitments and contracts. To the extent there is evidence that bankers do protect their own interest than do bank customers, regulation that focusses on education, simplification of terms, and disclosure may be able to enhance the understanding of customers and improve the efficiency and fairness of financing markets. Another consumer protection concern focuses between a fair and equitable treatment between consumers of equal economic standing regardless of own characteristics, such as race, color, religion, or country of national origin (Giocoli, 2008, p. 39-62). Although there is no clear evidence that such discrimination exists but if so it may cause these regulations to discourage if not halt discrimination of this type by banks.
SAFETY AND SOUNDNESS
Banks are more subject to failure, and bank failures can prove to be more adverse for customers, other banks, and the community. Because of the deliberate and potentially strong , broad negative externalities associated with bank failures and the widespread fear ignitions , bank safety as a method of concern needs to be pursued for maintaining (Connolly, 2008, p. 87-88):
* High proportion of demand to total deposits;
* Low ratio of cash to assets; and
* Low ratio of capital to assets.
The adverse implications from failure defeat the purpose of these three factors. Since banks hold only low ratios of cash on hand or called as fractional reserve banking , banks may be unable to meet all the deposit losses with cash if and when a bank run or crisis occurs and may be forced to sell earning assets quickly. If these losses on assets are sufficiently huge, they may well exceed the relatively low capital (high leverage) that banks maintain and drive them into economic insolvency. To reduce the risk of individual bank failure and thereby financial fragility, regulation has traditionally focused on maintaining bank capital and leverage (gearing) ratios at perceived safer levels. But fragility does not indicate signal breakage or failure. Thus, fragile fine wine glasses or chinaware often have lower breakage rates than less fragile ordinary drinking glasses or dishware, which are typically handled with considerably less care. Bank failures are widely viewed to be highly adverse than proving failures of other firms, giving rise to calls for greater government intervention to reduce the failure rate. Bank failures have been perceived as more damaging to the community than other failures and more likely to spread to other banks (Worrell, 2007, p.70-84,95). The resulting illiquidity both greatly increases fear of bank failures and greatly reduces the money supply for the economy, as also short-term deposits which are to be suddenly transformed involuntarily into longer-term deposits. The efficiency of the payments system has been indicated to be significantly affected. These adjustments may reasonably be expected to occur more slowly for banks than for the failure of many other types of firms, although the direct reduction in employment may be less severe. The failure of one bank is can spread easily and quickly to other banks, both because banks tend to be closely interconnected through interbank deposits and loans and because banks may appear to be more homogeneous. Thus, where a default on any given interbank exposure by one ba...