Essay Sample on Banking System Resilience

Introduction

The increased rise in the number of successful hackings on the United States banking and energy system threatens the safety of online banking and the financial system in general. There are a variety of questions on what the Secretary of The Treasury can do to strengthen the resilience of the banking sector of the United States. An effective financial policy design needs to integrate design principles which encourage innovation and financial activity by discouraging the excessive taking of risks into an inclusive, environmental approach to financial system governance.

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Adoption of Global Standards for Financial Stability

Calem, Correa and Lee (2017) explains that among the vulnerabilities which contribute to lack of resilience in the banking industry is the inability of the banks in the United States to adopt an international standard which is essential in promoting financial stability. The main reason why the United States banks should adopt international standards is the corresponding need for standardizing prudential regulation and globalization of the banking industry. The two significant highlighted areas are essential in creating humane conditions which regulate the contending environment. These help the banks in the United States to avoid unintentional costs which include supervisory arbitrage. Erbenova, et al., (2016) explain that the concept had its roots in the early 1970s when there were more interconnections in the banking industry. The primary cause was the need for expansion of the financial services which were linked to the emerging global trade. These generated the need for similahomogeneousr banking regulation.

Erbenova, et al., (2016) suggests that the adoption of international standards is essential in considering two critical matters. First, the standards are primarily shaped to be in line with the requirements in the developed countries through calibration to domestic conditions which are essential especially in developing economies. Secondly, the international standards would be a representation of the expected minimum to be reached. The case would leave to the preference for the adoption of more severe ideals.

According to Calem, Correa and Lee (2017), the essential standards which banks in the United States should implement in enhancing resilience are the Basel Committee on Banking Supervision (BCBS) recommendations. The initial idea of BCBS was to promote the non-binding and general recommendations for its members. The recommendations included liquidity risk, capital adequacy, cross border banking supervision and plans for appropriate banking supervision. The standards and the recommendations which BCBS set were essential in accomplishing appropriate supervision and regulation.

Risk-Based Supervision

According to Erbenova, et al., (2016), banks can embark on implementing risk-based supervision which is a supplement of reasonable regulation. The primary focus of supervision is to make sure that banks follow the instituted laws, policies and prudential regulation. Risk-based supervision depends on testing transactions through accounting and reconciling information. The supervision also relies on other thorough check oriented undertakings. The risk-based supervision undertakings are essential in preventing the various challenges which emerge from bad banking and mismanagement practices. However, the approach is insufficient because its primary aim is to assess whether banking undertakings are in line with the appropriate management practices. The method depends on the supervisors' ability to consider the qualitative aspects of board oversight and bank management.

Bene, et al., (2018) explains that risk-based supervision is also essential in facilitating financial stability. Since there was a global financial crisis which portrayed the adversities of appropriately implementing risk-based supervision globally, it is necessary to integrate expert judgment. The basis of expert judgment is the willingness of regulatory authorities to act in line with the qualitative assessment of how boards and management can perform their functions on overseeing risks and making appropriate decisions. Appropriate risk-based supervision is an opportunity of banks to promote good governance and fulfill the public trust obligation. Implementation of risk-based supervision would not work out if banks fail to meet some pre-set conditions which include legal protection and supervisory independence which are essential for supervisors.

Regulatory Reforms

Bene, et al., (2018) gives two primary focuses of regulatory reforms. These areas include the financial sector recovery and resolution framework, and liquidity requirements and capital adequacy. Bas 111 sets the liquidity requirements and capital adequacy while the regional economic organizations implement through directive and regulations. The regulatory reforms are essential in improving banking resilience and reducing incentives for extreme leverage and risk-taking. They are also critical for reducing interconnections and complexity and decreasing the social costs of bank fiasco and the need for inherent government assurances (Bene, et al., 2018). The banks in the United States can as well prohibit banks with insured deposits from engaging in economic transactions which have high risks and difficulty in conducting measurements. The case complements risk-based capital obligations. There is also a need to reduce interconnectedness and complexity to enhance supervision and bank management. Concerning this, banks can make the funding pricing of disjointed entities more risk-based and efficient. Reduction of interconnectedness and complexity can as well facilitate resolution and recovery which enhances credibility.

Enhancing Financial Responsibility

Through creating a relatively financial industry framework, and gaining partial assistance through the establishment of vivid national banking borders, the various banks in the United States can develop a banking culture which is sheltered from the internationally dominant Anglo-American culture. Political and policy pragmatism causes informal structural complimentary which reinforces intrusive, proactive and judgment dependent actions and decisions which financiers and bankers embrace to guide their prudential regulation actions. There is need to socially integrate bankers to establish evidence on the banking system of a relatively high level of social responsibility to facilitate social responsibility.

References

Bene, C., Mehta, L., McGranahan, G., Cannon, T., Gupte, J., & Tanner, T. (2018). Resilience as a policy narrative: potentials and limits in the context of urban planning. Climate and Development, 10(2), 116-133.

Calem, P. S., Correa, R., & Lee, S. J. (2017). Prudential policies and their impact on credit in the United States.Erbenova, M. M., Liu, M. Y., Kyriakos-Saad, M. N., Mejia, A. L., Gasha, J. G., Mathias, M. E., ... & Almeida, M. Y. (2016). The withdrawal of correspondent banking relationships: a case for policy action. International Monetary Fund.