Effect of Financial Regulation on Performance of Banking Sector in the United States of America

Abstract

Financial institutions are the most regulated market regardless of the development level of the nation. Financial regulations are the laws that have been put in place by the state to govern financial institutions. The stability of the financial institutions can be influenced by the regulations put in place. Thus, the study sought to examine the effect of financial regulation on performance of banking system in the United States of America. The study was a literature based. The inferences of the study were based on the findings from the previous studies. Based on the findings of the study, it was established that financial regulations has both positive and negative effect on performance of banking system in the United States of America. The favorable policies has a positive effect on performance while unfavorable policies/regulations has a negative effect on performance. A few of the regulation might have a negative impact on bank competitions causing greater loan prices and greater probability of loans defaults. The research concluded that government regulations are key in determining the performance of the banking sector in the country. The study also concluded that it is crucial for the government to offer the financial systems with favorable conditions of the financial regulation. The government of United States must just make use of the guideline plans which do not adversely impact the banks. The study recommend that all te commercial banks in the country need to comply fully to the stipulated regulations and the federal bank must ensure that all banks comply. This will have the effect of ensuring a stable banking sector which plays a big role in the economy. If this sector is stable the economy will thrive and financial crisis will be avoided in the country.