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Unformatted text preview: rough investing in
mutual or pension funds. Various laws protect investors against abuses such as insider
trading, lack of disclosure, outright malfeasance, and breach of fiduciary responsibilities. Important legislation affecting investment banks and mutual funds includes the
Securities Acts of 1933 and 1934 and the Investment Company Act of 1940. As with
consumer protection legislation, compliance with these acts can impose a net regulatory burden on FIs. Entry Regulation
The entry and activities of FIs are also regulated. Increasing or decreasing the cost of
entry into a financial sector affects the profitability of firms already competing in that
industry. Thus, the industries heavily protected against new entrants by high direct
costs (e.g., through capital contribution) and high indirect costs (e.g., by restricting individuals who can establish FIs) of entry produce bigger profits for existing firms than
those in which entry is relatively easy. In addition, regulations define the scope of permitted activities under a given charter. The broader the set of financial service activities permitted under a given charter, the more valuab...
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- Spring '09