StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

RETHINKING THE PRINCIPLES OF BANK REGULATION: A REVIEW OF ADMATI AND HELLWIG'S BANKERS' NEW CLOTHES - Essay Example

Cite this document
Summary
The current major problem is that the banks have been given too much autonomy over the deposits of the people, which in the real sense, should be considered as debts to these banks. Such power over the deposits can lead to temptation to abuse these funds, which small businesses…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER96.8% of users find it useful
RETHINKING THE PRINCIPLES OF BANK REGULATION: A REVIEW OF ADMATI AND HELLWIGS BANKERS NEW CLOTHES
Read Text Preview

Extract of sample "RETHINKING THE PRINCIPLES OF BANK REGULATION: A REVIEW OF ADMATI AND HELLWIG'S BANKERS' NEW CLOTHES"

Download file to see previous pages

The system that will be able to regulate and keep the deposits safe needs to be put in place (Admati & Hellwig 17). In order to safeguard depositors’ finances, the banks are required to accumulate more equity of their own so that they can not only attract investors and other depositors, but also be able to guarantee them the safety of their investments of deposits. Admati and Hellwig argue that banks need to have more equity of their own because if the value of its assets were to significantly decline, then the losses would only be borne by the owners of the banks with no affect on the banks ability to repay all its depositors until the owner’s equity was completely exhausted (Admati & Hellwig 31).

This is one major reason why the banks should have more equity because the depositors are comfortable knowing that their money is safe. The second reason why the banks should ensure they have significant amounts of equity it to ensure that the moral hazard in banking is completely solved. This means that the owners who control the bank would have more incentive to control risk of big losses, therefore, reducing the probability of investment losses large enough to affect depositors. Availability of banks equity means that the profits will be shared equally between both the small and big investors and shareholders.

This keeps the banks safe from maneuvers such as the take-over bids by the big decision makers of the banks. Ultimately, the availability of equality attracts more depositors and the bank is able to receive loans and other outside contributions at lower interest rates because it has its own capital that acts as its security. It has also been discovered that though important, equity can also serve as a disadvantage for the banks. Equity is generally expensive for these banks and increasing it will have a direct effect on the lending rates and would

...Download file to see next pages Read More
Tags
Cite this document
  • APA
  • MLA
  • CHICAGO
(“RETHINKING THE PRINCIPLES OF BANK REGULATION: A REVIEW OF ADMATI AND Essay”, n.d.)
Retrieved de https://studentshare.org/macro-microeconomics/1643608-rethinking-the-principles-of-bank-regulation-a-review-of-admati-and-hellwigs-bankers-new-clothes
(RETHINKING THE PRINCIPLES OF BANK REGULATION: A REVIEW OF ADMATI AND Essay)
https://studentshare.org/macro-microeconomics/1643608-rethinking-the-principles-of-bank-regulation-a-review-of-admati-and-hellwigs-bankers-new-clothes.
“RETHINKING THE PRINCIPLES OF BANK REGULATION: A REVIEW OF ADMATI AND Essay”, n.d. https://studentshare.org/macro-microeconomics/1643608-rethinking-the-principles-of-bank-regulation-a-review-of-admati-and-hellwigs-bankers-new-clothes.
  • Cited: 0 times

CHECK THESE SAMPLES OF RETHINKING THE PRINCIPLES OF BANK REGULATION: A REVIEW OF ADMATI AND HELLWIG'S BANKERS' NEW CLOTHES

The Speckled Band

Sir Arthur Conan Doyle's famous detective, Sherlock Holmes, is legendary.... In one of his classic escapades, The Adventure of the Speckled Band, Doyle frames the brilliance of his hero in an exotic tale of mystery and intrigue by using several devices familiar to the detective genre; particularly in regard to his characters....
4 Pages (1000 words) Book Report/Review

Honeymoon by James Patterson

new York: Headline, 2011.... This study will present a critical analysis of the novel “Honeymoon” written by James Patterson.... The researcher states that Patterson's book qualifies for those mentioned factors, making it a novel that leaves the reader intrigued.... hellip; This research will begin with the statement that reading is an interesting activity, especially when the story is fun-filled, thrilling and full of unpredictable unfolding events....
1 Pages (250 words) Book Report/Review

Charging firms for cash deposits To banks, it makes sense by Lazarus

To banks, it makes sense by Lazarus" focuses on the system when the bank charges on deposits are likely to affect smaller firms more than larger ones.... They may seem little to many hence bank account holders ignore them.... This is evident since they do not disclose earnings form deposits although they account for around a third of the bank's total revenues.... Although these bank charges may seem little, they are quite substantial considering the thousands or even millions of deposits that banks receive periodically....
1 Pages (250 words) Book Report/Review

Managerial economics-Ethics assignment

This was all done without any regulation and they trusted the banks to give people credit.... Given the position to do so, I initiate regulation and start with even just a few steps in order to supervise the Wall Street system.... It started with the bankruptcy of Bear Stearns, a smaller financial firm which was bailed out by the United… Then things take its ugly turn as Lehman Brothers' shares, the fourth largest investment bank, is plummeting fast....
2 Pages (500 words) Movie Review

Seven Principles for Making Marriage Work

The paper "Seven principles for Making Marriage Work" tells that the vast majority of Gottman's standards for making supportable and cheerful relational unions rotate around one critical component: fellowship.... The accomplices have the capacity to keep up a common appreciation for one another....
6 Pages (1500 words) Book Report/Review

Scot's Principle of Symmetry

There are deeper concerns, which touch upon principles of diversity, complexity, autonomy, decentralization, symbiosis, egalitarianism, and classlessness.... The paper “Scot's Principle of Symmetry” seeks to evaluate the social construction of Technology in which the developmental process of a technological artifact is described as an alteration of variation and selection....
2 Pages (500 words) Book Report/Review

Greg Bakers Ghosts of Rwanda

The two hour documentary reveals interviews from key… The core issue throughout the documentary is the shocking indifference of the world, more so from the United States and the United Nations, in the wake of the nationwide The paper "Ghosts of Rwanda by Greg Baker" is an outstanding example of a movie review on history....
3 Pages (750 words) Movie Review

The Social Contract or Principles of Political Right

"The Social Contract or principles of Political Right" paper focuses on Jean Jacques Rousseau and John Stuart Mill whose ideas have helped to focus the Western mind more closely on the issue of personal liberty and how the individual relates to the state and other members of the society....
12 Pages (3000 words) Literature review
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us