Question & Answer: What are the basic objectives of depository institution regulation and how do regulators attempt to…

Expert Answer

There are five main goals which are basic objectives of depository institution regulation and the regulators use the following methods to achieve these objectives –

• Safety and soundness of the financial system of the economy: The safety and soundness of the system is maintained by limiting the financial institutions risk taking activities by the regulators so that they can avoid risky situation.
• An efficient and competitive financial system should be maintained: The regulators promotes a competitive financial system and discourage the resource allocation of the institutions to non-competitive activities.
• The monetary stability in the economy: By maintaining safety and soundness of the financial system of the economy and efficient and competitive financial system, the regulators try to maintain the monetary stability in the economy, which is very important to maintain liquidity in the economy.
• The credible national payment system: The credibility of national payment system for their obligations is very important to maintain the faith in whole financial system and regulators ensure that.
• The consumer protection from the misuses of the system by the various agencies working towards the credit granting facilities for consumers: The regulators of the system ensure that the all the consumers get the equal opportunity to get financial support from the system and a transparency should be maintained by the financial institutions.