Impact of legislation on banks portfolio risk and its failure effects

Abstract

The banks work on very strong compliance norms, as they are the custodians to the customer’s money. They need to ensure that the money does not belong to them, and it needs to be managed with maximum precision as it becomes a liability on the part of banking institutions. The financial system needs to work on a defined line with a focused approach. There is always a dotted line mechanism to run the business with certain specifics. Banks need to work with the primary objective of protecting depositors’ investments, managing risk and ensuring the proper flow of information to all stakeholders. The banking sector needs to always work on preventive and protective mechanisms, and it needs to manage the critical ratio of assets and liabilities, and its mismatch cannot be afforded at any point in time. In recent times, we saw the failure of two banking giants, Yes Bank and Laxmi Vilas Bank, which makes us think about legislation and regulatory compliance in the right spirit.