Bank Regulation In The U. S

By Author: peter
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Banks are a special case when I comes to regulation.
On one hand, they are private businesses just like to;
manufacturers and steel companies. Hut they also play a central role in the economy and therefore affect the well-being o everybody, not just their own consumers. Since the 1930s, Americas ave devised regulations designed to recognize the unique position banks hold.
One of the Tag Heuer Replica Watches most important of these regulations is deposit in surface. During the Great Depression, America's economic decline was seriously aggravated when vast numbers of depositors, concerned that the banks where they had deposited their savings would fail, sought to withdraw their funds all at the same time. In the resulting "runs1" on banks, depositors often lined up on the street: in a panicky attempt to get their money. Many banks, including ones that were operated prudently^, collapsed because they cook not convert all their assets to cash quickly enough to satisfy depositors. As a result, the supply of funds banks could lend to business: and industrial ...
... enterprise shrank, contributing to the economy's decline.

Deposit insurance was designed to prevent such runs or banks. The government said it would stand behind deposits up to certain level—$ 100,000 currently. Now. if a bank appears to but in financial trouble, depositors no longer have to worry. The government's bank-insurance agency, known as the Federal Deposit Insurance Corporation3, pays off the depositors, using fund; collected as insurance premiums'' from the banks themselves. I necessary, the government also will use general tax revenues to protect depositors from losses. To protect the government from undue6 financial risk, regulators supervise banks and order corrective action if the banks are found to be taking undue risks.

The New Deal of the 1930s era also gave rise to rules preventing banks from engaging in the securities and insurance businesses. Prior to7 the Depression, many banks ran into trouble because they took excessive risks in the stock market or provided loans to industrial companies in which bank directors or officers had personal investments. Determined to prevent that from happening again, Depression-era politicians enacted the Glass-Seagull Act8, which prohibited the mixing of banking, securities, and insurance businesses. Such regulation grew controversial in the 1970s, however, as banks complained that they would lose customers to other financial companies unless they could offer a wider variety of financial services.

The government responded by giving banks greater freedom to offer consumers new types of financial services. Then, in late 1999, Congress enacted the Financial Services Modernization Act of 19999, which repealed1" the Glass-Seagull Act. The new law went beyond the considerable freedom that banks already were enjoying to offer everything from consumer banking to underwriting11 securities. It allowed banks, securities, and insurance firms to form financial conglomerates that could market a range of financial products including mutual funds, stocks and bonds, insurance, and automobile loans. As with laws deregulating transportation, telecommunications, and other industries, the new law was expected to generate a wave of mergers among financial institutions.While Hublot Replica Watches banks generally should be allowed to fail when they become insolvent, Americans believe that the government has a continuing responsibility to supervise them and prevent them from

engaging in unnecessarily snaky lending iliat could damage the en-lire economy. In addition to direct supervision, regulators increasingly emphasize the importance of requiring banks to raise a substantial amount of their own capital. Besides giving hanks fund that can be used lo absorb losses, capital requirements encourage banks to operate responsibly since they will lose these funds in the event1" their banks fail. Regulators also stress the importance o: requiring banks to disclose their Financial status; banks are hike to behave more responsibly if their atomics and conditions arc publicly known.