Romania's biggest banks

Who is Responsible for Banking Regulation?

Banks are international, which can make banking regulation incredibly tough. After all, a banking regulator will only really have control over the bank’s operations at a national level. However, you may be surprised to know that the bulk of banks operate specifically to the requirements of a few regulators. This is because the largest economies in the world often have regulation practices which apply to smaller companies, or at least meet the minimum requirements with little-to-no changes required in the structure of the bank.

Too Big to Fail and Self-Regulation

One of the big problems for any economy is that, quite often, banks form the backbone of the economy. If a bank fails, then the economy for a country is going to collapse. As a result, you may find that many big banks do tend to get away with things that smaller banks may not be able to get away with. This means that in some countries, you may find that certain banks go through self-regulation.

Of course, there is the issue of making sure that a bank still tries to follow the law as closely as possible, and you will find that many governments will try to steer them in the right direction. If you were around during the financial crash, then you may have noticed that even though big banks were doing things ‘wrong’ and probably against the laws of a country, the governments were still willing to bail out the banks because if they disappeared, then a country may end up crumbling.

When another financial crash happens, then you will likely see that many governments will start to weigh up whether it is worth supporting the big banks that are breaching regulations. You may also notice that fines start to be dished out, although the fines are never going to be high enough to cause real issues for a bank, particularly if they are operating in multiple countries at once.

Hand pointing a bank

Banking Regulators

Every country will have its own banking regulators in place. It will be one central body, for example in the United Kingdom it will be the ‘Bank of England’ which is responsible for a great deal of regulatory policy, although a lot of it will also be controlled by the government with the creation of their own laws.

There will be several standards that these banking regulators will try to control. This includes:

  • Capital Management: this details how the bank should manage their capital against their assets. This ensures that the bank maintains profitability, and the people and companies who store money in their banks are protected.
  • Reserve Management: probably not as common nowadays, but in the past, banks were required to keep physical bank notes and the like in reserve at all times.
  • Corporate governance: these laws oversea how the company is run, who can be directors of the bank etc.
  • Financial reporting: the banks will be required to report their finances to shareholders regularly.
  • Credit rating: the bank may be required to hold a minimum credit rating.
  • Exposure requirements: many banking regulators will require that banks diversify their operations to ensure that a fall in one market could not bring the whole bank down.
Standarts which banking regulators control

Countries will have their own rules and regulations, but you will find that many of the requirements for G10 countries are going to be much the same because it ensures that banks will be able to operate across economies easily.

Banking regulations are not there to protect banks. They are there to ensure that businesses, people, and whole economies are fully protected. After all, if a bank is not operating properly, then huge amounts of cash will be lost. The people who have deposited money in that bank will lose it.

Bank Examiners

It will be the job of bank examiners, hired by the government, who are responsible for overseeing banks and ensuring they stick to regulations. Bank examiners will likely work closely with one individual bank and prepare regular reports. It is their reports which will see whether banks are punished if they fall foul of any banking regulations, although this is rarely the case with bigger banks.

Bank Examiners
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