The role of banking regulation in mantaining depositor confidence in the banking sector

Abstract

This thesis examines the fundamental role of bank regulation in maintaining depositor confidence in the banking sector. Chapter 1 considers the first attempts at defining the 'business of banking' so as to provide the reader with a clear understanding of what 'the business of banking' actually entails, thus enabling one to identify with reasonable certainty those entities engaged in the banking business and to whom the legislation analysed in subsequent chapters applies and with which this thesis is primarily concerned. Chapter 1 also gives an account and allows one to appreciate the earliest notable attempts at regulating the banking sector, on both a local and international level. Chapter 2 identifies and examines the principal methods of bank regulation, their recognised benefits and drawbacks, and the extent to which such methods strive and have proven to maintain depositor confidence. Chapter 3 goes into the issue of bank runs, their potential causes and effects, and recognised preventive strategies. It also identifies some of the past examples of runs on both foreign and local banks, and their postulated causes. Although the issue of bank runs may be one more akin to a study on economics, I feel that it is an issue which is of major relevance to this thesis as bank runs are a direct consequence of a total loss of depositor confidence in their bank's financial integrity. Chapter 4 identifies the relevant European Union banking Directives and analyses the pertinent provisions aimed at maintaining depositor confidence in the Community banking sector. Chapter 5, on the other hand, undertakes a detailed and critical assessment of those provisions in the Maltese Banking Act, Banking Rules, Banking Notices and relevant banking regulations, which strive to maintain depositor confidence in the Maltese banking sector.