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Bank Regulation - loving people in banking c “too big to...

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Bank Regulation Banks are one of the nation’s most heavily regulated industries. Table 14.2 (p.363) Fed, FDIC, Comptroller of the Currency (National Banks), state agencies (state banks) We have talked about some of the major legislation Why so heavily regulated? Important part of economy, need to establish faith and trust (fiat money) Regulatory Consolidation versus Regulatory Competition Government involvement: 1. to protect SAVERS 2. to protect customers from monopoly 3. to ensure stability Also, banking is characterized by: Asymmetric information (depositors don’t know all that the bank is doing with their money) Moral hazard – adverse incentives to do the wrong thing Between saver and bank Regulations 1. Safety Net – deposit insurance, FDIC payoff method (deposits up to 100k, no more bank, purchase and assumption (merge with another bank, no deposits lost) a. Government as "lender of last resort" b. moral hazard problem: more risk by banks, less monitoring by depositors, more risk-
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Unformatted text preview: loving people in banking, c. “too big to fail” – leads to less monitoring. People know the gvt won’t let a really big bank fail. Too disruptive. NOT REALLY A POLICY as stated in the book. 2. Asset restrictions – limited to loans, government securities. 3. Capital requirements: bank must risk some of its own money. Gives bank more of a stake in its own success or failure. 4. Chartering and examination: state or national charter (file periodic reports to maintain), auditors & examiners – change in focus from balance sheet to management processes. 5. Disclosure requirements: accounting standards, reporting to depositors, creditors, stockholders. 6. Restrictions on Competition: branching and interstate banking, risky assets (investment banking) – competition can promote risk taking. Asymmetric Information was related to distance. These restrictions are eroding. McFadden Act. Riegle-Neal…....
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