Governance of Banks: Financial Regulation and Economic Stability in Kenya
Overview
This paper examines the governance and regulatory frameworks of banking institutions, with particular focus on the Kenyan financial system. It discusses how financial regulations influence bank lending behavior to SMEs and the broader implications for economic growth and financial stability.
What this essay covers
- Introduction addressing need for financial regulatory review post-crisis
- Role of financial intermediaries and banking institutions in economic development
- Regulatory structure and governance mechanisms in Kenya's financial system
- Impact of regulations on capital adequacy, asset quality, and monetary policy implementation
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Governance of Banks
Recent financial crises have illustrated that there is a need to keep domestic and global financial regulatory systems under constant review. The main purpose for reviewing the system is ensuring that they are aligned with the prevailing demands in the market. After the financial crisis, several nations are prioritizing and enhancing financial regulations. Regulation of financial institutions influences the day-to-day behaviors of actors in the financial market. In this regard, the governance systems for banks influences how much banks are willing to lend to small and medium enterprises (SMEs) (Mwega, 2014). Further, the regulations enacted also influence how the financial system evolves, creating indirect impacts on the financial market. As the banking system becomes more diverse, the lending system based on economic sectors is also influenced. The Kenyan economy is vulnerable to external and internal shocks but has a poorly regulated financial system. Finance serves a significant purpose in facilitating productive economic activities. In this regard, regulation and governance of banks is aimed to maintain financial stability and exponential growth of the economy (Momanyi, 2018).
The financial market facilitates the flow of funds from primary providers (households) to the users (corporate firms). The flow of resources involves an intermediary intervention because it is a very rare occurrence for financial resources to flow from providers to users. The main intermediary is the financial institution. In the Kenyan economy, there are different types of financial intermediaries that have different specific functions.