Bank regulation: Encyclopedia - Bank regulation

Bank regulation

Banks are subject to certain bank regulations and requirements that aim to uphold the soundness and integrity of the financial system.

Bank regulation - Reserve requirements

This type of regulation has perhaps lost the role it once had in places like the United States. Today (2004) deposits in United States banks are roughly $8 trillion while central bank "reserves of depository institutions" are less than $50 billion. This is because reserve requirements apply to just "transaction deposits" today.

The reason for these reserves are both to put a limit on how much the supply of deposits (money and credit) can grow. They also work as a cushion in case of a severe recession that leads to a "bank run."

Bank regulation - Capital requirements

Internationally, the Bank for International Settlements's Basel Committee on Banking Supervision influences each country's capital requirements. In 1988, the Committee decided to introduce a capital measurement system commonly referred to as the Basel Capital Accords. The latest capital adequacy framework is commonly known as Basel II.

In the United States, "depository institutions" are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System (FRB).

See also

• Financial regulation
• Monetary policy
• Money market
• Risk adjusted assets (risk weighted assets)

Adapted from the Wikipedia article "Bank regulation", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki