Banks Interconnection

Banks are highly interconnected with national economies. This means that they are also highly intertwined with the global economy, a situation that can be attributed to the high rate of globalization. This is where the world has been reduced into a global village. This great interconnectedness between the banks and the world economy can also be demonstrated in the global financial crisis that rocked the world from the year 2007. This crisis started as a severe credit crunch and it almost brought American and European banks to a total collapse1. The causes of the global crisis included a failure in regulation, which could be used to prevent a failure of the banks. It is however, important to point out that regulations have always been in place and it is why it is excusable to side with those who think that regulations have little capability in helping to curb financial crises in the world2. Those with contrary views are said to hold, “the too big to fall notion”, which connotes the importance of banks in the economy and thus they cannot be allowed to fall. It is this idea that inspired the bailing out of banks during the recent global financial crisis3. Regulations, according to me are important. This is due to the the fact that the economy is a dynamic organism and thus justifying the need to minimize regulations in order not to get in the way of innovation and thus fostering economic growth. Regulations when done right can help to minimize the risks taken by banks, reduce the disruptions that occur after a financial crisis, like the one that occurred in 2007, and also prevent the banks from engaging in improper conduct which in most cases is illegal4. Regulations can also help countries achieve certain policy objective given that they can control the credit allocation procedures in banks by ensuring certain areas of the economy that they deem appropriate are well funded5. Lastly, regulations play the important role of ensuring that customers are not exploited by the banks. This can be through ensuring that banks adhere to their corporate responsibilities. These objectives are what the Financial Services Market Act of 2000 was meant to achieve. The act however received backslash from the public after its provision and the bodies it created failed to prevent or lessen the effects of the global, financial crisis of 2007-2008. This could partly be the reason why people, that are against regulations have the views they hold6. The financial services and markets introduced the (FSA) Financial Services Authority. The establishment of this body marked a radical change in the UK’s financial sector laws given that it was allocated massive power. This included the ability to regulate other financial institutions including the insurance companies and securities firms. This was appropriate given that there was a thin line separating these institutions from the bank          

Sample Solution