Академический Документы
Профессиональный Документы
Культура Документы
1811175
MONEY AND BANKING
ASSIGNMENT NO# 4
SUBMITTED TO MS. NAYYAB JAVED
Adverse selection is basically Asymmetric information from the bank which leads to
wrong decision making and moral hazards.
The other aspect is of bank panics relates with all large banks as if they default then it
would have a sort of panic for the other banks for the fluctuation which can default the
bank.
In the scenario of bank AL-Falah, bank holds 55.37 billion capital. In the scenario of
fluctuations, the bank will is large shareholder. This might can cost heavily if the bank
panic initiates and unfortunately it defaults. Bank might can be liquidate and no money
will be left to pay off debts.
As per state bank, the bank are liable to maintain minimum capital requirement of 10
billion for the commercial banks whereas, bank alfalah has maintained 7.4 billion which
is quite necessary in case of any default scenario.
State bank suggests the commercial banks a certain amount of risky investment 10.6 %
return and also regulates to diversify the investment in multiple sector. The bank alfalah
have multiple investments with limited expected risk up to 5 and 8%.
Basically these two concepts are similar in nature which defines the relationship of
information and what sort of customers are essential for the information to minimize risk
for bank and customer.
Interest rate varies from bank to bank, the official regulation is to maintain 2 TO 8%
with the interested groups.
CONSUMER PROTECTION AND RESTRICTION ON COMPETITION:
Consumer protection basically includes the truth in lending, which mean that no hidden
charges would be applicable in the future to the customer. Cost of borrowing details must
be provided and the total financing charges. State bank of Pakistan suggests to have some
sort of collateral against the loan for mature dealing but bank alfalah didn’t have
collateral if the loan is less the 1 lac. The bank provides sufficient time to pay back the
loan.
The state bank regulate the competition within the banks up to certain limits regarding the
technologies, innovation, and multiple aspects.
Due to which, the state bank sometimes charges the interest if banks are working on the
same scale.