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Regulations are imposed differentially on the various

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Unformatted text preview: ion, (3) credit allocation regulation, (4) consumer protection regulation, (5) investor protection regulation, and (6) entry and chartering regulation. Regulations are imposed differentially on the various types of FIs. For example, depository institutions are the most heavily regulated of the FIs. Finance companies, on the other hand, are subject to much fewer regulations. Regulation can also be imposed at the federal or the state level and occasionally at the international level, as in the case of bank capital requirements (see Chapter 20). Finally, some of these regulations are functional in nature, covering all FIs that carry out certain functions, such as payment services, while others are institution specific. Because of the historically segmented nature of the U.S. FI system, many regulations in that system are institution specific, for example, consumer protection legislation imposed on bank credit allocation to local communities. Merton11 and others have argued that because of the rapidly changing nature of institutions in the financial system, regulation ought to be increasingly based on a functional perspective, (i.e...
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