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Bank Regulation and Central Bank Policy for Bfis

Autor:   •  December 1, 2018  •  1,622 Words (7 Pages)  •  79 Views

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Deregulation is the process of removing or reducing the regulations, typically in the economic sphere. It is the undoing or repeal of governmental regulation of the economy. Deregulation is when the government reduces or eliminates restrictions to improve the ease of doing business. The government removes the regulation when banks complain it interferes too much with their ability to compete. Deregulation means that the government does not interfere with the business in a day to day manner and act only when specific complaints against business are brought before them. Further, deregulation also means that government does not set prices or put in motion price controls leaving the process of determining the optimal pricing to the market forces of demand and supply. Deregulation emerged since 1990s when the market began to globalize and open to foreign competition and developing countries liberalized their economy internally so that domestic firms were able to compete freely without the heavy hand of state. This means that instead of heavy hand of the state (Government strong interfere), markets were left to work according to invisible hand of market economy.

Deregulation refers to the deletion, abandonment or relaxation of various laws, rules and regulations that affect business and industry. Proponents of deregulation argue that government intervention (regulation) hampers the natural law of supply and demand ultimately increases costs to consumers. Critics argue that bank regulations create market distortions and hamper economic growth. But people disagree on whether too little or too much bank regulation caused the credit crunch in the past (mid and late 2000s) and subsequent recession. In addition, overregulation of business is thought to thwart innovation by creating delays increased red tape. On the other hand regulation of business and industry by government is for the purposes of consumer protection and or the enhancement of business competition. Regulation is generally thought to also protect minorities, employees, investors and the environment.

Pros and cons of Deregulation


- Allows more innovation.

- Allows the free market to set prices.


- May create crises and recessions

- Prevents industries with huge infrastructure cost, like electricity from getting started.

- Exposes people to fraud and excessive risk taking by companies that will do anything to gain higher profit.

- Social concerns are ignored and lost.

- Rural populations are under served .

Advantages And Disadvantages of Deregulation.

Deregulation brings both advantages and disadvantages to the consumers. Unlike the mostly benefits that deregulation has for businesses, there are some pitfalls of deregulation for the consumes. If we look at the advantages first, consumers benefit because they have more choices and hence, can affect the demand for a particular product by switching to competitors when they find the products as inferior or pricey. Further, deregulation also benefits the consumers because they can participate in efficient purchase and efficient consumer behavior as well as be rewarded with superior customer service, as the customer is the king in a market economy. However, there are some disadvantages as well as consumers might be hit with the side effects of too much liberalization in the form of the businesses having more power than before leading to arrogance towards the consumers, especially those who cannot pay more for products because of their socioeconomic condition. The point here is that deregulation impacts those at the bottom of the economic ladder most as without the protective hand of the state; they might left at the mercy of the profits first businesses who care more for their profits rather than social and environmental responsibility.


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