Re‐Regulating banks: The unfinished agenda
| Date | 01 January 2000 |
| Pages | 9-15 |
| Published date | 01 January 2000 |
| DOI | https://doi.org/10.1108/eb025027 |
| Author | Andy Mullineux |
| Subject Matter | Accounting & finance |
Journal of Financial Regulation and Compliance Volume 8 Number 1
Papers
Re-Regulating banks: The unfinished agenda
Andy Mullineux
Received: 22nd September, 1999
Department of Economics, University of Birmingham, Edgbaston, Birmingham B15 2TT;
tel:
0121 414 6630; fax: 0121 414 7377; e-mail: a.w.mullineux@bham.ac.uk
Andy (A.W.) Mullineux is Professor of
Money and Banking in the Department of
Economics and Head of School of Social
Sciences at the University of Birmingham,
UK. He has published extensively on finan-
cial sector restructuring and regulatory
and supervisory reform in various coun-
tries and regions, including Central and
East Europe and, most recently, East and
South-East Asia.
ABSTRACT
It is argued that bank regulation is required to
protect depositors who are less risk averse than
bank
shareholders.
The ongoing financial revo-
lution has generally benefited consumers of
financial services by increasing competition and
broadening the range of products. More and
more people have, however, been excluded.
The paper
considers
whether further regulation
is required to ensure that the financially
excluded gain
access
to payments services and
overdrafts and loans. It is concluded that there
is plenty of
scope
for involving banks, credit
unions and other new mutuals in the elimina-
tion of financial exclusion.
WHY REGULATE BANKS?
Deposit-taking institutions, henceforth
called banks whether they are mutually
owned or publicly (shareholder) owned,
are special. They differ from other 'firms'
in that they not only produce services (eg
payments and other money transmission
services) and products (deposit and savings
account packages and loans etc.) and sell
them to consumers (often their own
depositors), but they also have a fiduciary
responsibility to the depositors whose sav-
ings and transaction balances they are safe-
keeping. They differ from other financial
intermediaries in that they have liabilities
(demand deposits) which are widely
accepted as a means of payment (money).
The difference is starkest for non-mutual
banks since there is likely to be a conflict
of interest between depositors, who seek
low-risk repositories for their savings, and
hence relatively low returns, and share-
holders, who eschew the safe option of pla-
cing money in a bank and seek a higher
return, and hence exposure to risk of loss
of wealth, by investing in shares (equities).
Institutional shareholders (insurance, pen-
sion and mutual funds, and the big banks
in countries such as Germany and Japan)
are the most important shareholders. Mem-
bers of the general public increasingly tend
to hold shares vicariously through partici-
pation in the aforementioned funds. In so
doing they buy into more diversified, and
hence lower risk, portfolios of investments.
The managers of banks are hired by the
owners (shareholders) to run the bank on
Journal of Financial Regulation
and Compliance. Vol. 8. No. 1,
2000.
pp. 9-15
© Henry Stewart Publications,
1358-1988
Page 9
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