The most important rationale for regulation in banking is to address concerns over the safety and stability of financial institutions, the financial sector as a whole, and the payments system.
Capital adequacy requirements make sure that banks do not become too much exposed.
Why is regulation necessary?
Examples of such public-interest regulations include laws to outlaw child labor, building code regulations to ensure stable construction and prevent catastrophic fires, food and pharmaceutical regulations, environmental protections, and laws to prevent irresponsible mortgage lending.
What is the reason why South African banks need to be regulated?
The purpose of these amendments was to bring the banking legal framework in line with interna- tional regulatory and market developments. A second act, the Mutual Banks Act, 1993 (Act No 124 of 1993), aims to fill the gap between the formal and the informal financial sectors.
Why do we need banks?
They also provide a range of other financial services to their customers. Banks are places where individuals and organisations can store money which they don’t wish to use at any given time. The money (and other precious items) can be stored more safely in banks than on their own premises.