The Evolution of Regulations in Banking : A Cycle Based Approach

The question about the specialness of banks has been the center of debates amongst academicians and regulators over a long period of time as leading to extensive regulations for controlling and supervision of banks. The base regulations, though not legally compulsory, have been those developed and published by Basel Committee since mid-1970s. The main intention of these regulations is to assure globally sound and stable financial systems in individual countries that will eventually lead to a stable economy across the globe. However, the recent financial crisis has proved that the banking regulations have not served as intended and yet they are under major revisions again. In this paper it is intended to investigate the evolution of bank regulations with a particular attention to the scope of banking, capital adequacy and deposit insurance. It will be another focal point of this paper to draw attention to the existence of cycles in the processes of regulations that makes regulations to move between two extremities; tight and loose regulations. In this manuscript these issues are investigated with an analysis of related literature and with specific observation on the evolution of regulations in the USA