Objectives of Bank Regulation
The objectives of bank regulation, and the emphasis, vary between jurisdictions. The most common objectives are:
- Prudential—to reduce the level of risk to which bank creditors are exposed (i.e. to protect depositors)
- Systemic risk reduction—to reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures
- Avoid misuse of banks—to reduce the risk of banks being used for criminal purposes, e.g. laundering the proceeds of crime
- To protect banking confidentiality
- Credit allocation—to direct credit to favored sectors
- to provide the best customer service in this competitive age.
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—Friedrich Nietzsche (1844–1900)
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—David Hume (1711–1776)