Banking Industry

The banking industry is a pillar in any country's economy. This is why regulators are worried when there are excesses being committed in the industry that tends to undermine people's confidence. Banks promote economic activities by acting as financial intermediaries, providing the crucial link between lenders and borrowers. The banking industry itself is subject to strict regulatory environment because of its importance to a nation's economy and it is a big part in the fiscal regulations of any government. This means it plays a crucial role of government initiatives and efforts to promote employment and investments. An example here would be the role played by banks in dispersing retail treasury bills and bonds to promote savings among the citizenry. It is also a good way to control inflation by mopping up excess liquidity whenever money grows too fast.

On the reverse side, central banks also regulate banks to prevent any downward spiral such as deflationary pressures that can threaten any economic recovery. It is a sustained downward pressure on prices that will wipe out asset values and it is equally dangerous, similar to inflation. In the latter case, inflation can wipe out the purchasing power and money becomes worthless if not controlled early. Rare cases happen when there occurs hyper-inflation, a rapid currency depreciation that is very hard to manage. Early signs of inflationary pressures should be nipped in the bud immediately before things get out of hand. Bankers use term deposits to control inflation by getting excess liquidity from circulation by offering big interest rates that will entice people to save rather than spend to reduce demand.