What Is Involved in the Regulation of Financial Institutions?

Financial institution supervision is the government's supervision and restraint of financial institutions in key borrowing, lending, and fund initiation areas. There are two reasons for the government's supervision of financial institutions: First, because financial institutions play a special role in the modern economy, financial institutions help households and manufacturers save, making complex payments between many economic factors more convenient. Commercial banks are still governments The passage of monetary policy and the failure of financial institutions will severely disrupt the country's economic activities. Second, it is determined by the internal governance factors of financial institutions. The leverage ratios of financial institutions are relatively high, and the company's shareholders' desire to control the management has decreased. Management often pursues business scale and obtains higher returns from the scale. Once the management of the organization pursues the business scale too quickly, it will inevitably cause overheating of macroeconomic activities, decline in stability, and loss of social welfare. ^[1]