Role of Government in Safety Net of Banks

Jul 4th, 2015
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Southern Wesleyan University
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Safety nets are the set of protections catered by the governmental law enforcement and legislative authorities to the bank clients.

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Eco320 Review QuestionsRole of Government in Safety Net of BanksSafety nets are the set of protections catered by the governmental law enforcement and legislative authorities to the bank clients. The purpose of the involvement of federal authorities in bank safety net is to preserve the interests of investors, minimize the effects of monopoly and streamline the banking system as a tool to boost economic growth on the federal level [Zeepedia (2015)]. Investors with limited budgets and miniature scope of their businesses have low capacity of understanding the financial functioning of the banks and it is the responsibility of government to ensure the standards and scale of reliability of the bank. Thus, government can actively resolve the managerial and integrity issues of the banks with investors. Monopoly oriented organizations have the strongest tendency of fixing prices with placing hurdles for any competitors in the market. Government legislative body can pass relevant laws to make sure to have checks and balances on prices and interest fixing by the banks. Monopoly can be minimized or regularized in a way. Risks about liquidity and mishandling of financial information can be having huge impact on the financial state of the bank as well as the economic condition on the state level. Government constructs systematic strategies to handle the risks involved with financial systems [Zeepedia (2015)]. The main evolution of Safety net systems for banking happened

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