Question

Why has the trend in bank supervision moved away from a focus on capital requirements to a focus on risk management?

Short answer

capital requirements don't really show whether banks are taking on too much risk, risk the executives permits managers to concentrate more on risk-taking strategies and subsequently may forestall indebtedness later on.

Step-by-step solution

Concept Introduction

Bank supervision is an administrative capacity responible of the obligation of guaranteeing the security and adequacy of the banking framework all in all. Books and issues of each authorized safeguarded establishment are analyzed for meeting its administrative order.

Step 2:Explanation

Risk management in banking is hypothetically described as "the coherent turn of events and execution of an arrangement to manage possible misfortunes". Generally, the focal point of the risk management rehearses in the financial business is to deal with an establishment's openness to misfortunes or risk and to safeguard the worth of its resources. Overall financial business is viewed as risky business. Economic hypothesis recommends that there are two monetary units - surplus unit and shortfall unit - and these monetary units like to utilize monetary establishments (middle people) to move the vital assets to one another. Surely, this interaction expands the significance of the monetary go-betweens in the economy, yet additionally represents a few risks to these establishments

Step 3:Final answer

capital requirements don't really show whether banks are taking on too much risk, risk the executives permits managers to concentrate more on risk-taking strategies and subsequently may forestall indebtedness later on.