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Chapter 02 - CHAPTER 2 THE IMPACT OF GOVERNMENT POLICY AND...

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CHAPTER 2 THE IMPACT OF GOVERNMENT POLICY AND REGULATION ON BANKING AND THE FINANCIAL SERVICES INDUSTRY Goal of This Chapter : This chapter is devoted to a study of the complex regulatory environment that governments around the world have created for banks and other financial service firms in an effort to safeguard the public’s savings, bring stability to the financial system, and prevent abuse of financial service customers. Key Topics Presented in This Chapter The Principal Reasons for Bank and Nonbank Financial-Services Regulation Major Bank and Nonbank Regulators and Laws The Riegle-Neal and Gramm-Leach-Bliley (GLB) Acts Key Regulatory Issues Left Unresolved The Central Banking System Organization and Structure of the Federal Reserve System and Leading Central Banks of Europe and Asia Industry Impact of Central Bank Policy Tools Chapter Outline I. Introduction: Nature and Importance of Bank Regulation II. Banking Regulation A. Pros and Cons of Strict Rules 1. To protect the public's savings 2. To control the money supply 3. To ensure adequate supply of loans and to ensure fairness 4. To maintain confidence in the system 5. To avoid monopoly powers 6. To provide support for government activities 7. To support special sectors of the economy B. The Impact of Regulation -The Arguments for Strict Rules versus Lenient Rules III. Major Banking Laws-Where and When the Rules Originated A. Meet the “Parents”: The Legislation That Created Today’s Bank Regulators a. National Currency and Bank Acts (1863-64) b. The Federal Reserve Act (1913) c. The Banking Act of 1933 (Glass-Steagall) d. Establishing the FDIC under Glass-Steagall e. Criticisms of the FDIC and Responses Via New Legislation f. Raising the FDIC Insurance Limit B. Instilling Social Graces and Morales-Social Responsibility Laws C. Legislation Aimed at Allowing Interstate Banking: Where Can the “Kids” Play? 11
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D. The Gramm-Leach-Bliley Act (1999): What Are Acceptable Activities for Playtime? E. Telling the Truth and Not Stretching It-The Sarbanes-Oxley Accounting Standards Act (2002) IV. The 21 st Century Issues in an Array of New Laws, Regulations and Regulatory Strategies A. The FACT Act B. Check 21 C. New Bankruptcy Rules D. Federal Deposit Insurance Reform E. New Regulatory Strategies in a New Century and Unresolved Regulatory Issues V. The Regulation of Nonbank Financial-Service Firms A. Regulating Thrift (Savings) Industry 1. Credit Unions 2. Savings and Loans and Savings Banks 3. Money Market Funds 4. Life and Property/Casualty Insurance Companies 5. Finance Companies 6. Mutual Funds 7. Security Brokers and Dealers 8. Financial Conglomerates B. Are Regulations Really Necessary in the Financial Services Sector? VI. The Central Banking System: It’s Impact on Banks and the Decisions and Policies of Financial Institutions A. Organizational Structure of the Federal Reserve System B. The Central Bank's Principal Task -- Making and Implementing Monetary Policy 1.
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