Governments have played a pivotal role in shaping how the banks have evolved over centuries

and this has to be taken into account when it comes to creating space any meaningful discussion

on banking reforms.

The emergence of modern states and modern banking systems has been closely intertwined.

Whereas for a long time banks had had to deal with defaulting sovereigns now state stake

increasingly to incur the cost of defaulting banks.

The fact that banks conduct business in a glowing range of nations and regions and thus are

exposed to various regimes has also turned out to be an important driver of the co - ordination of

banking regulation on global scale.

Kroszner states that "regulation rather than competition determines a banks range of product and

services , types of its assets and liabilities, the extent of control of non financial firms by banks

and of banks by non financial firms. Nevertheless there is a lack of appreciation of how the

government shapes the nature of banks themselves and how they evolve as institutions.

Government is not merely a constraint on bank in fact public policy shapes bank's very

motivations. It is important to know that mainstream lit. underplays the role played by govt. in

creating and shaping bank behaviour. In doing so the significance of bank regulation goes well

beyond just implementing and regulating the rules of the bank.