1 / 11

BANK REGULATION

BANK REGULATION. CHAPTER 18. REGULATORY STRUCTURE OF THE BANKING SYSTEM. Comptroller of the Currency Chartering and Auditing Oversight for Intrastate branching, mergers, acquisitions, and consolidations Federal Reserve System Setting reserve requirements

wayne-paul
Download Presentation

BANK REGULATION

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. BANK REGULATION CHAPTER 18

  2. REGULATORY STRUCTURE OF THE BANKING SYSTEM • Comptroller of the Currency • Chartering and Auditing • Oversight for Intrastate branching, mergers, acquisitions, and consolidations • Federal Reserve System • Setting reserve requirements • Controls borrowing at the discount window • Oversight for state-chartered member banks • State Banking Commissions • Limitations on inter- and intra-state banking as well as branching • Non-Insured states have considerably less FED and US Government oversight

  3. REGULATION OF BANK OWNERSHIP • Bank Holding Companies (BHC) http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx • 1980 Amendments to Bank Holding Company Act (1956) • Permits BHC to enter non-banking activities • Permits BHC to acquire banks in different states • Financial Services Modernization Act (1999) • Repeals Glass-Steagal Act (1933) • Permits affiliations with Insurance and Brokerage firms • Engage in any financial activity via subsidiaries of BHC • Most important – cleared way for consolidation of industry

  4. BALANCE SHEET REGULATIONS • Regulation of Deposits; DIDMCA (1980) • All depository institutions can offer NOW accounts; dealing with disintermediation • De facto entry of banks into money market activities • Regulation of Loans • Attempting to limit portion of loan portfolio in high leverage transactions • Limiting amount of loans to any individual client

  5. BALANCE SHEET REGULATIONS • Regulation of Capital • Capital = Total Assets minus Total Liabilities • The greater the capital of a bank, the greater the stability (5 - 8 % is typical) • Recent development in the EC have begun to result in uniform capital requirements • Basel Accord, 1988: Greater risk level require greater capital (equity)

  6. INTEREST RATE REGULATIONS • Deposit Rate Regulations • The Problem of disintermediation; rate caps result in deposit flight • After 1980, rates largely deregulated on most accounts (Regulation Q) • Loan Rate Regulations • Truth-in-Lending regulations • Reporting of transactions in mortgage markets

  7. GEOGRAPHIC REGULATIONS • Intrastate Regulations • Few limits on intra-state banking and branching • Acquisitions by out-of-state BHC still a touchy issue, particularly in capital deficit areas • Interstate Regulations • McFadden Act; prevent concentration of banking power • Competition spurs lower rates and more services to borrowers and depositors • Some Mutual Funds now performing limited banking-type services via MM funds • Large national brokerage houses offer a variety of bank-like services; ML CMA

  8. HOW REGULATORS MONITOR BANKS (CAMEL) • Capital Adequacy • The greater the capital ratio, the stronger the bank • Ability to absorb losses is a function of capital • Asset Quality and Average Maturity of the Loan Portfolio • How much credit risk exposure • 5-Cs of Credit • -Character-Capacity-Capital-Collateral-Conditions

  9. HOW REGULATORS MONITOR BANKS (CAMEL) • Management • Regulatory conformance • Internal controls • Earnings strength and Trends • ROA measure • Liquidity • Vault resources • Borrowings (from Fed or Fed Funds) to cover reserve short-falls

  10. REGULATORY ISSUES IN BANKING • FDIC INSURANCE PRICING ISSUE • Proposals to Reform Deposit Insurance • THE INTERSTATE BANKING ISSUE • Arguments for Interstate Banking • Arguments against Interstate Banking • THE "TOO BIG TO FAIL" ISSUE • Argument for Government Rescue • Argument against Government Rescue • Bear-Stearns? Was the Fed right to come to the "rescue" of BSC?

  11. HOMEWORK QUESTIONS • What functions does the Comptroller of the Currency perform? • What are primary objectives of Federal Reserve System? • What oversight exists for state chartered banks? • Why are Bank Holding Companies (BHC) an important? • How do regulators affect intra-state and inter-state banking? • How did regulators deal with the disintermediation issue? • What metrics do auditors and regulators use to ensure bank performance? • What does it mean when banks engage in off-balance sheet activities? • Q&A: 2, 5, 12, Interp: c

More Related