The topic of whether banks should be allowed to trade in risky assets is a recurring theme in IELTS Writing Task 2 essays. Based on an analysis of past IELTS exams and current economic trends, this subject is likely to appear frequently in future tests. It touches on critical issues of financial regulation, economic stability, and the role of banks in society, making it a prime candidate for IELTS essay questions.
One of the most relevant and frequently encountered prompts related to this topic is:
Some people think that banks should not be allowed to trade in risky assets. To what extent do you agree or disagree?
Let’s analyze this prompt and provide sample essays for different band scores, along with detailed explanations of their strengths and weaknesses.
Analyzing the Prompt
This question requires candidates to express their opinion on whether banks should be permitted to engage in high-risk trading activities. Key points to consider include:
- The definition of “risky assets”
- The potential benefits and drawbacks of banks trading in such assets
- The impact on the economy and individual customers
- The role of regulation in controlling bank activities
- Alternative approaches to managing bank operations
Candidates should clearly state their position and provide well-reasoned arguments to support their view.
Sample Essay 1 (Band 8-9)
In recent years, the debate over whether banks should be permitted to trade in risky assets has intensified, particularly in light of past financial crises. While some argue that such activities are essential for economic growth, I firmly believe that banks should be significantly restricted in their engagement with high-risk investments due to the potential for catastrophic economic consequences.
Firstly, banks play a crucial role in safeguarding the financial well-being of individuals and businesses. When these institutions engage in speculative trading with depositors’ funds, they jeopardize the stability of the entire financial system. The 2008 global financial crisis serves as a stark reminder of how risky trading practices by banks can lead to widespread economic devastation, affecting millions of people worldwide. This historical precedent underscores the need for stringent regulations to prevent similar occurrences in the future.
Moreover, allowing banks to trade in risky assets creates a moral hazard. Financial institutions may be emboldened to take excessive risks, knowing that governments are likely to bail them out if their bets go wrong. This “too big to fail” mentality distorts market dynamics and unfairly shifts the burden of risk from banks to taxpayers. By restricting banks’ ability to engage in high-risk trading, we can foster a more responsible and sustainable banking sector that prioritizes long-term stability over short-term profits.
However, it is important to acknowledge that some level of risk-taking is inherent in the banking sector and necessary for economic growth. The key lies in striking a balance between innovation and prudence. Regulators could implement a tiered system where a small portion of a bank’s assets can be allocated to higher-risk investments, while the majority must be maintained in safer, more stable financial instruments. This approach would allow banks to participate in potentially lucrative opportunities while minimizing the risk to the broader economy.
In conclusion, while the complete prohibition of risky trading by banks may be impractical, I strongly advocate for substantial restrictions on such activities. By prioritizing financial stability and consumer protection, we can create a more resilient banking system that serves the best interests of society as a whole. The challenge for policymakers is to craft regulations that curb excessive risk-taking without stifling innovation and economic growth.
Banks trading in risky assets and regulation
Explanation of Band 8-9 Score
This essay demonstrates excellent writing skills and is worthy of a Band 8-9 score for the following reasons:
Task Response: The essay fully addresses all parts of the task, presenting a clear position with well-developed arguments.
Coherence and Cohesion: Ideas are logically organized with clear progression throughout the essay. Paragraphs are well-linked, and cohesive devices are used effectively.
Lexical Resource: The vocabulary is sophisticated and precise, with a wide range of less common words and phrases used accurately (e.g., “moral hazard,” “stringent regulations,” “jeopardize”).
Grammatical Range and Accuracy: The essay showcases a wide range of complex structures used accurately and appropriately.
Critical Thinking: The essay demonstrates nuanced thinking by acknowledging counterarguments and proposing balanced solutions.
Sample Essay 2 (Band 6-7)
The question of whether banks should be allowed to trade in risky assets is a complicated one. While some people think it’s too dangerous, others believe it’s necessary for economic growth. In my opinion, banks should be allowed to trade in risky assets, but with strict rules and limits.
Firstly, trading in risky assets can be profitable for banks, which can help the economy. When banks make money, they can lend more to businesses and individuals, which can boost economic growth. This can create jobs and improve people’s lives. Also, if banks are not allowed to take any risks, they might not be able to make enough money to survive in a competitive market.
However, it’s true that risky trading can be dangerous. The financial crisis of 2008 showed how bad things can get when banks take too many risks. Many people lost their homes and savings because of the actions of some banks. This is why it’s important to have strong rules and regulations to control how much risk banks can take.
I think the solution is to find a balance. Banks should be allowed to trade in some risky assets, but there should be limits on how much they can invest in these types of assets. For example, maybe only a small percentage of a bank’s total assets should be allowed to be used for risky trading. There should also be regular checks by government regulators to make sure banks are following the rules.
In conclusion, while there are risks involved, I believe banks should be allowed to trade in risky assets, but with careful regulation. This approach can help the economy grow while also protecting people’s money and the overall financial system. The challenge is to find the right balance between allowing banks to make profits and keeping the financial system safe.
Explanation of Band 6-7 Score
This essay demonstrates good writing skills and is worthy of a Band 6-7 score for the following reasons:
Task Response: The essay addresses the main parts of the task and presents a clear position, though the arguments could be more fully developed.
Coherence and Cohesion: The essay is generally well-organized with clear progression of ideas, though the use of cohesive devices is sometimes mechanical.
Lexical Resource: There is a good range of vocabulary, though it is less sophisticated than the Band 8-9 essay. Some attempts at less common vocabulary are made (e.g., “boost economic growth,” “competitive market”).
Grammatical Range and Accuracy: The essay uses a mix of simple and complex sentence structures with generally good control, though there are some minor errors.
Critical Thinking: The essay shows some evidence of critical thinking by considering both sides of the argument, though the analysis is less in-depth compared to the Band 8-9 essay.
Bank risk management illustration
Key Vocabulary to Remember
Risky assets (noun phrase) – /ˈrɪski ˈæsets/ – Financial instruments with a high degree of price volatility or potential for loss.
Financial crisis (noun phrase) – /faɪˈnænʃəl ˈkraɪsɪs/ – A situation where the value of financial institutions or assets drops rapidly.
Regulation (noun) – /ˌreɡjuˈleɪʃn/ – A rule or directive made and maintained by an authority.
Economic growth (noun phrase) – /ˌekəˈnɒmɪk ɡrəʊθ/ – An increase in the amount of goods and services produced per head of the population over a period of time.
Moral hazard (noun phrase) – /ˈmɒrəl ˈhæzəd/ – A situation where an entity has an incentive to increase its exposure to risk because it does not bear the full costs of that risk.
Speculative trading (noun phrase) – /ˈspekjʊlətɪv ˈtreɪdɪŋ/ – The buying or selling of a security or commodity with the expectation of a sharp rise or fall in price.
Financial stability (noun phrase) – /faɪˈnænʃəl stəˈbɪləti/ – A state in which the financial system can withstand shocks without major disruption.
Risk management (noun phrase) – /rɪsk ˈmænɪdʒmənt/ – The forecasting and evaluation of financial risks together with the identification of procedures to avoid or minimize their impact.
These vocabulary items are crucial for discussing the topic of banks trading in risky assets and can help elevate the quality of your IELTS Writing Task 2 essay.
In conclusion, the question of whether banks should be allowed to trade in risky assets is a complex and important topic that is likely to appear in future IELTS Writing Task 2 exams. By understanding the key issues involved and practicing with sample essays like those provided above, you can improve your ability to write a high-scoring response to this type of question.
To further enhance your skills, try writing your own essay on this topic and share it in the comments section below. This practice will help you apply the vocabulary and concepts discussed in this article, and you may receive valuable feedback from other learners or instructors.
Additionally, be prepared for similar topics that might appear in future IELTS exams, such as:
- The role of government in regulating financial institutions
- The impact of technological advancements on banking and finance
- The pros and cons of international banking regulations
- The ethical responsibilities of banks in modern society
By exploring these related topics and continuing to practice your essay writing skills, you’ll be well-prepared for success in the IELTS Writing Task 2.
