Class%20#7%20461%20DFI%20Regulation0

Class%20#7%20461%20DFI%20Regulation0 - Regulation of...

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Regulation of Depository Financial Intermediaries
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2 Current Events Presentations TODAY: Meiling Liu THURSDAY : Uuganbayar Batkhuyag Assignment: Text, Chapters 21 and 22 and Appendix 21A Bank Project Part A due Thursday (or by noon Fri.)
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3 Class Outline 1. Regulation 2. Why regulation of DFIs? Objectives of regulation 3. What is regulated? 4. Who regulates? 5. Regulation and supervision Bank examinations
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4 1. Regulation Interference by government in otherwise private or free markets affecting decisions about transactions that take place in these markets. Regulation constrains those who participate in these markets, affecting their decisions and actions Why does this happen in a country with a capitalist, free market economy?
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5 Ownership of goods and means of production Capitalism Communism Continuum of Market Decision Making Free State Control Markets of Markets
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6
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7 2. Why regulation of DFIs? Are there desired outcomes for FIs that are not or cannot be achieved by letting market forces work without intervention by government? What are these desired outcomes? Are there conditions present in the FI business that are not present in other types of businesses that require this intervention? What are these conditions?
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8 Objectives of regulation 1. Safety and soundness 2. Efficiency in the financial system Allocational efficiency Operational efficiency 3. Consumer protection 4. Social objectives Some of these goals are contradictory .
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9 The big two (objectives) 1. Safety and soundness Stability in the financial system No banking panics (no systemic bank runs) No systemic (large numbers of) failures of banks (that can have negative effects on the economy) Financial markets work
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10 The big two (continued) 2. Economic efficiency Not the same as market efficiency Allocational efficiency —funds are allocated to the most efficient use—that is, in a risk and expected return sense. The country (citizens, economy) is better off when scarce capital gets used efficiently Operational efficiency —the allocation is done at the lowest possible cost
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11 Contradictory objectives? Perhaps efficiency (competition) is contradictory with the other objectives . That is, perfect efficiency would require no intervention in markets except to keep FI firms competitive (antitrust, etc.). So, is efficiency so important that the benefits that flow from pursuing the other objectives should be given up? Or can we stand a “little less” efficiency to meet some other objectives too?
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12 The other two (objectives) Consumer protection Ensure that users of the system are not disadvantaged by the intermediaries Promote full disclosure—transparency Prohibit illegal discrimination
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  • Fall '11
  • Morgan
  • Federal Reserve System, Federal Deposit Insurance Corporation, Bank run, Office of Thrift Supervision, Deposit insurance

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Class%20#7%20461%20DFI%20Regulation0 - Regulation of...

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