General principles of bank regulation:
Banking regulations can vary widely across nations and jurisdictions.
This section of the article describes general principles of bank
regulation throughout the world.
Minimum requirements
Requirements are imposed on banks in order to promote the objectives
of the regulator. Often, these requirements are closely tied to the
level of risk exposure for a certain sector of the bank. The most
important minimum requirement in banking regulation is maintaining minimum capital ratios.
To some extent, U.S. banks have some leeway in determining who will supervise and regulate them.
Supervisory review
Banks are required to be issued with a bank license
by the regulator in order to carry on business as a bank, and the
regulator supervises licensed banks for compliance with the requirements
and responds to breaches of the requirements through obtaining
undertakings, giving directions, imposing penalties or revoking the
bank's license.
Market discipline
The regulator requires banks to publicly disclose financial and other
information, and depositors and other creditors are able to use this
information to assess the level of risk and to make investment
decisions. As a result of this, the bank is subject to market discipline
and the regulator can also use market pricing information as an
indicator of the bank's financial health.
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