Professional Documents
Culture Documents
Regulations
Regulations
Regulation
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Key Topics
The Principal Reasons for Bank and Nonbank
Financial-Services Regulation
The Central Banking System
Macroeconomic and Monetary Policy
Regulation vs. Growth
Size vs. Scope
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Macroeconomic Policies
The Governments primary objective is to achieve
economic stability and growth
Three indicators are targeted and monitored to
achieve this objective: Prices, Employment and
Balance of payments
The two pillars of macroeconomic policy are Fiscal
and Monetary policies
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Bank Management and Financial
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Bank Management and Financial
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Bank Management and Financial
COMPONENTS OF THE
FINANCIAL SYSTEM
FINANCIAL MARKETS, which act as brokers, and
FINANCIAL INTERMEDIARIES, which act as asset
transformers
The objectives of both financial markets and
intermediaries are to:
Bring together savings-surplus units and savings-deficit
units
Transfer resources from surplus units to deficit units
Facilitate flow of savings into investment
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Bank Management and Financial
How banks create credit Banks, as financial intermediaries, cannot create currency.
The Money Multiplier
But they can create deposits, which in turn can be lent
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An agreement
Between 2 parties
Where one party SELLS securities [for raising short term funds]
At a specified price
With commitment to BUY BACK
At another date
At another predetermined price
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Items
A
15
1991-92 to 2010-11
(Upto September 2010)
5.8
B.I.
-144.7
B.II.
415.7
a. Foreign Investment
236.2
Of which
B.III.
FDI
102.7
FII
103.0
b. NRI Deposits
39.1
c. External Assistance
24.3
76.7
39.0
16.5
292.9
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Data
Source: Half Yearly RBI Report on Management
of Foreign Exchange Reserves April 2008 The McGraw-Hill Companies, Inc., All Rights
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Evolution of Regulation
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Pre 1947
Bank Failure, RBI, Regulatory system
1947-1967
Banking Companies Act, Deposit Insurance,
1967-1991-92
Tightening social controls, Priority lending, No assurance of
profitability or asset quality,
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Volcker Rule
Separation of activities
Limit on trading book
proprietary trading
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rather
than
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Quick Quiz
Briefly describe various types of banking regulations and
try to match each major law with the main
goals/functions of regulations
How have bank failures influenced recent legislation?
What regulatory issues remain to be resolved?
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Bank Management and Financial