Econ310_Notes20101019 - Bank Regulation (10/19/2010) 004...

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Bank Regulation (10/19/2010) Econ 310- 004 Definitions thrift institutions (thrifts) – savings and loan associations, mutual savings banks, and credit unions credit unions – cooperative lending institutions organized around a particular group (e.g., union members, employees, etc.) closed end investment company – stock owned: issues fixed # of shares and has a secondary market (e.g., stock on exchange) open end investment company – mutually owned: variable # of shares, not saleable on secondary market, direct link between share/asset value (e.g., mutual fund, hedge fund) Principles The lines between thrifts and commercial banks have become blurred since 1980s. Thrifts have been all but eliminated by the Financial Stability Act of 2010. Thrifts are now regulated by the Comptroller of the Currency, the Federal Reserve, and the FDIC. In the 1970s banks were hurt by interest rate caps and disintermediation, so they called for deregulation. Deposit insurance created a moral hazard problem (fixed premiums irrespective of risk) leading to risky investments. S&Ls had higher interest rate risk and a lower equity cushion. In the late 1980’s many S&Ls failed due to a moral hazard problem with deposit insurance,
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This note was uploaded on 01/26/2011 for the course ECON 310 taught by Professor Staff during the Fall '08 term at George Mason.

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Econ310_Notes20101019 - Bank Regulation (10/19/2010) 004...

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