Question

How is bank regulation linked to the conduct of

monetary policy?

Short answer

Banks' regulation is directly linked with monetary policy.

Step-by-step solution

Concept Introduction

Monetary Policy It's principally the policy created by the financial authority of a country (like the Fed in the USA or central bank) to control either the plutocrat force or the cost of short-term loans. It's frequently targeted towards controlling affectation rate or interest rate for icing price and currency stability.

Explanation

Bank regulation includes supervision of banks and other institutions such as loans and savings unions and credit unions. When all such institutions function well and stay healthy, it stimulates the money creation process. Vice versa, if the banking system fails, money management will automatically fail.

For example, if the bank supervisors get to know that the bank has negative or low net worth, or is making large numbers of risky loans, they either force the bank to close or its behaviour.

Hence, banks regulation is directly linked with monetary policy.