Wednesday, October 21, 2009

Changes in the Banking Industry

Posted by Scarlett Lu

During a financial crisis it is important for banks to retain capital so they do not have to depend solely on the government when a financial crisis occurs. Government and central banks have put alot of money in keeping the financial system work. Retaining capital will reduce large bank's risk of becoming illiquid during a financial crisis.This will improve banks capital levels. Regulatory reforms and re-evaluation of the monetary, regulatory, and supervisory policy is needed to prevent another financial crisis. An authority should be created to help sustain the economy and dealing with failing financial firms. Financial institutions should discover the problems earlier before they mature over time.
Global regulators state that banks have to improve their risk management and internal controls following the financial crisis. The report, called "Risk Management Lessons from the Global Banking Crisis of 2008" was created by global regulators to repost the progress of reducing financial risk.
Regulators want to phase out programs that guarantee debt issued by banks so banks will be relying less on the government. The less banks reply on the government the more careful they will be in loaning out to risky customers. Regulators want to set up a 6 month safety net facility, even though it will be more costly. Under the 6-month facility, subject to approval, a bank's senior unsecured debt issued after October 31 would be guaranteed through April 30, 2010.

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