The Reform of the Banking System Essay Example | Topics and Well Written Essays - 2500 words

The Reform of the Banking System - Essay Example led because there is a prevalence of risk about their existence that in the future again their performance might lead to economic and financial crisis. According to the President of the Dallas Federal Reserve Bank, Richard Fisher, the pseudo-banks and the large banks are difficult to manage due to their big size that creates problem in its supervision. The President is of the view that the costs that these banks impose are more than the advantages that people or society receives from their existence. The financial institutions which were considered â€Å"too big to fall† intensified the crisis in the past few years and had resulted in the fall of potential output and most importantly employment. Moreover, it is better to have several manageable units rather than one big unmanageable unit (Nutting, 2010). 1.2 Banks should not be broken up According to the Confederation of British Industry (CBI), the banks should not be broken up because the splitting policy could harm the role of the UK at the control of global finance. The present public anger should be tackled which is over the bankers’ larger bonuses by ensuring that the banks in the UK can still attract and employ top talents. The Independent Commission on Banking (ICB) was set up in Britain during the year 2010, whose responsibility was to analyse the probable shaking up of the industry after the credit crisis occurred and it found that top lenders such as Lloyds and Royal Bank of Scotland are in need of taxpayer bailout. It is believed by the CBI that breaking up the banks would be a mistake and they need to develop a strong system of banking that would help the economic growth as a whole. The views of the CBI are supportive if observed from the side that during the global financial crisis, many universal banks... This essay approves that the rules of the regulatory bodies regarding the penalties against the banks that violate the standards should be presented in stringent form to the bankers. The policy can be set in which the bankers get paid only for the returns on five to ten years of investment by the people. This will make the bankers to concentrate on the amount of risk when it develops and sells products. This paper makes a conclusion that Financial Crisis Responsibility Fee is incorporated by the government to earn the bailout cost. This is an earning of the government through tax that primarily performs two things. One is that it modifies the behaviour of the banks and the other is that it generates revenue for the government which can be used for reimbursing the taxpayers for bailout cost in the economy’s financial system. The tax would affect the bank behaviour in the sense that tax is more precisely termed as a payment of interest. In this case, it is paid after the occurrence of the disaster rather than before the occurrence. It can also be termed as a loan to the banking industry if the cost of the bailout is paid in full by the banks. They are only charged for certain direct and indirect costs such as the package of stimulus for helping the ruined economy. This arrangement would provide an assurance to the government that in case of occurrence of any financial crisis in the future where the government has to bail the banks out, the banks will not be able to escape payment of certain costs.