The new york times by timothy l obrien tough

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The New York Timesby Timothy L. O'Brien ("Tough Washington Insider to Face His Critics on Bank Regulation, June 2, 2004) describes how Mr. Hawkes overhaul of his agency's early warning systems are coming under scrutiny, mainly because the agency failed "to fix longstanding compliance problems at the Riggs National Corporation" which is "caught up in sprawling federal investigations of suspected money laundering and terrorist financing through its accounts." The article also notes that "Mr. Hawke also tangled with state regulators when he issued guidelines in February saying that his agency has the upper hand in enforcing lending laws." Among his critics has been New York's attorney general, Eliot Spitzer, who says the "comptroller's guidelines favor banks and weaken consumer protection." The dispute may ultimately end up in the Supreme Court since the issue involves questions of states rights and the separation of powers.Virtual ToolsVisit the bank regulators on line:For the FDIC go to: For the Comptroller of the Currency go to: For the Federal Reserve go to: To learn more about your state banking regulators you can go to this site which provides links to all the state regulators: Learn about the views of those who favor limited roles for government by visiting the web site of the Shadow Financial Regulatory Committee.For More DiscussionFor a different perspective on bank runs, have students read this short article by George G. Kaufman, who is the John F. Smith Professor of Finance and Economics at Loyola University in Chicago. He argues that the dangers of runs may be overstated. Chapter OutlineI.The Sources and Consequences of Runs, Panics, and Crises1.Banks’ fragility arises from the fact that they provide liquidity to depositors, allowing them to withdraw their balances on demand, on a first-come, first-served basis.Instructor’s Manual t/a Cecchetti: Money, Banking, and Financial Markets199
Chapter 14 Regulating the Financial System2.Reports that a bank has become insolvent can spread fear that it will run out of cash and close its doors; such a run on a bank can cause it to fail.3.What matters during a bank run is not whether a bank is solvent but whether it is liquid; false rumors that a bank is insolvent can lead to a run which renders it illiquid.4.When a bank fails, depositors may lose some or all of their deposits, and information about borrowers’ creditworthiness may disappear; for this reason, governments take steps to try to minimize the risk of failure.5.A single bank failure can also turn into a system-wide panic; this is called contagion.

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