Question

Why does the government take an active role in the regulation of the u.s. financial system?

Answer 1

The government take an active role in the regulation of the u.s. financial system because commercial banks are essential to the creation of money and to the protection of American citizens.

Commercial banks are essential to the printing of banknotes and are therefore regulated by the government to make sure a sound and competitive financial system. Government is the best political party to maintain the financial system.

However, excessive state intervention is undesirable because it interferes with laissez-faire policies, which are very important for financial markets. Governments therefore have a challenging role to play. Its purpose is to ensure the smooth functioning of the financial system. However, this should be done without direct intervention.

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