What role do regulatory agencies play in the financial system?

Regulatory agencies play a crucial role in the financial system by overseeing financial institutions. Their primary responsibility is to ensure the safety and soundness of the banking system, protecting depositors and maintaining public confidence in the financial markets. This oversight includes creating and enforcing rules and regulations to promote transparency, accountability, and ethical behavior among financial institutions.

By supervising banks and other financial entities, these agencies help mitigate risks related to fraud, insolvency, and systemic crises. They also conduct regular examinations and audits to evaluate the financial health of institutions and ensure compliance with laws. This regulatory framework aims to foster a stable financial environment, which is essential for the functioning of the economy.

In contrast, the other options refer to activities that are not typically performed by regulatory agencies. For example, while offering loans to individuals is a function of banks and lending institutions, regulatory agencies do not provide loans. Facilitating security trades is primarily the role of exchanges and brokers rather than regulators, and creating monetary policy is the responsibility of central banks, not regulatory agencies.