Banking post financial turmoil

Financial turmoil acts  as a heralding for a series of events about to take place.Banking organizations are the
most prominent to take the blow.History has shown that the reason for the biggest financial turmoil to date be it the great depression of 1929 or the recent financial crisis of 2008,has been the banking sector.Specially after  the 2008 financial turmoil countries across the world are making sure that they have a prudent and pragmatic banking sector.
Basel 3 is the proposed solution to make sure that various banks across several countries are better off dealingwith problem as serious as the recent financial distress.For trivial understanding purpose basel 3 just meansholding enough cash to make sure that even during financial downturns the bank will be able to meet it's creditorsexpectation and also will be able to do it's routine business without going bust.This two words phrase "more cushion"will imply a large number of imperatives for the banks management.Basel 3 proposes banks to hold more assets and that too in the form of equity,what this implies is that the banks will have to fore go some of its profits as it will not be able to lend to its probable customers.
Banking is now seeing a shift from the deregulation phase to the regulation phase.The very assumption that banksare self correcting and are better left to the markets was proven wrong.The Dodd-franc rule proposed by the  American government is expected to change the way the banks functions by effecting various aspects of banking  like their borrowing costs ,the amount of loans given as a percentage of deposits etc.One of the proposals is  to separate the commercial/retail arm from the investment arm known as the volcker rule.The basis for coining of the volcker rule is that banks should not be allowed to speculate with peoples money, rather it should be invested in safer assets like government securities bonds.The impact that this separation will have will be that banks wont be able to use the cheaper source of funds(deposits) to finance it's riskier and high returning  activities.This nascent development will force banks to move into more riskier domain of
business seeking higher returns which can justify the high cost of capital.so the question again rises whether the new set of regulations will indeed help the banks get more safer or will they be a cause of yet other agony for the banking sector.
Governments across the countries in order to restore the confidence among common public are coming up with schemes like deposit insurance.This poses a bigger challenge for Regulators and they are always on their toes to make sure the banks are operating properly and have sound business model in place.Switzerland which  is home to two of the worlds biggest banks UBS and Credit Sussie is taking a even tougher stance and has allowed the regulators to have a say in the banks decisions making.Any such step has its own draw back as it may force the bank to relocate somewhere else.
Another important aspect which needs some mulling over is that Financial markets are leaky i.e money flows from one financial market to another and banks no longer operate in a single country.These all make the work of the central bank way more tedious.The impact of a bank failing in one country may effect several other countries.This is what has happened in Greece case,it's various banks are highly correlated to the working of other big banks across Europe and hence even the proposal of soft restructuring of the debt has
been thwarted by the European central Bank.Here at this point I will like to throw some light upon how various banks across the countries are correlated to each other.
Interbank lending known as the money market is a short term money market where various banks turn to during times of financial distress.The financial distress could be ralated to meeting the minimum capital requirement or could simply be a source of liquidity required to pursue banks day to day activity.One of the major culprit of 2008 financial crisis was banks over reliance of this short term source of fund and once this source of fund dried up banks founded it quite difficult to go on with their current activities.This heavy reliance on short term funding implies that one bank is dependent on other which in turn is dependent on another set of banks and so on leading to a chain and hence even if one banks defaults there is a risk of whole banking sector falling apart and in order to prevent this it is the government which acts as the most important cog of this whole system.