Role of Regulation in Financial System
The role of regulation in the financial system is to provide information to citizens on how they can make financial decisions so that they can maximize the efficiency of their capital. Without regulating the banks, the financial market will be prone to uncontrollable growth and inflation. This will cause problems in economic development. In fact, some say that without regulating the financial market, the entire system will collapse. A Successful financial regulation prevents market failure, promotes macroeconomic stability, protects investors. tax relief services can also be used to improve market transparency and to protect investors. In fact, the financial system is a vast network of interrelated activities which are required to keep an economy running smoothly. It is the interaction of these activities that keeps the economy growing. Economic growth leads to capital accumulation, which is the basis of all modern economies. Capital enables individuals and firms to employ more people, invest in businesses, expand their territorial boundaries, and borrow capital from others. All these activities are integral parts of the capital cycle and none of these activities can take place unless there is an appropriate distribution of wealth. The role of regulation in the financial system is indeed important and no one can deny the importance of it. However, excessive regulation should not be seen as a threat to the free market. Instead, it is seen as a necessary condition for the smooth functioning of the financial system. It is true that the excessive use of government intervention can lead to distortion effects but at the same time it can be a useful mechanism to avoid failure and to ensure proper functioning of the financial system. There are different types of regulation, and they have diverse effects on the economy. Some types of regulation are essential for the smooth functioning of the economy, while others are used to control financial resources. A good example is the requirement for reserve funds. In this case, a certain level of reserves must be maintained in order to finance the various activities of the economy. In a broader sense, all forms of regulation are used to maintain the money supply in the economy. In the modern era, money is created to be backed by real assets. Thus, government loans create money which is in turn money that can be lent out. However, this process involves the creation of new money, which results in a disturbance in the market prices and so on. All these disturbances are called Money Fluctuations. As you can see from above, the role of regulation in the financial system is very important indeed. Nevertheless, it is not possible for government to create money on its own. There are times when the government may want to control certain aspects of the financial system like interest rates or reserve funds etc. All these activities need the consent of the majority of the citizens because they will ultimately affect the overall stability of the economy.