MBB23

2. Money, Banking,
and Business
Lecture 23
Regulation
Chapter 12

3. Questions?

4. Chapter 12
Regulation of the
Banking System and
the Financial Services
Industry

5. Regulators
Temptation
Bailouts
Safety and Soundness
Acts as one system

7. Regulators
Banks
Office of the Comptroller of the Currency
FDIC
Federal Reserve Bank (FED)
Bank Holding Companies
Financial Holding Companies
FED
Securities and Exchange Commission (SEC)
State Insurance Commissions
Savings and Loan Associations
(S&Ls)
Office of Thrift Supervision (OTS)
FDIC
Credit Unions
Non-profit, tax-exempt
National Credit Union Administration
Finance Companies State Regulators, Federal Trade Commission (FTC)
Financial Futures Commodity Futures Trading Commission, National Futures Association
Financial Options SEC, Options Clearing Corporation
Mutual Funds SEC
Insurance Companies State Insurance Commissions
Pension Funds Department of Labor, Pension Benefit Guaranty Corporation
Stocks and Bonds SEC, FED margin requirements
Securities Firms SEC, NYSE, Other Exchanges, NASD, Securities Investor Protection Corporation
Government Sponsored Enterprises Other Agencies

8. Regulators
Too Big to Fail
Segment
Keep Small
Combine
Go Big

9. Capital
Assets
Liabilities
=
Assets
Capital
Balance Sheet

10. Basel Accords I, II, III
Bank of International Settlements
Banking Standards
13 Countries
Capital Requirements
Supervision Internal Assessment
Publish Performance

11. Core Capital
HistoricalValue of Stock plus
Retained Earnings
Total Capital
Core Capital plus loan-loss reserves
plus subordinated debt

12. Stock Issued $500,000
Retained Earnings $275,000
= Core Capital $775,000
Loan-Loss Reserves $260,000
Subordinated Debt $500,000
= Total Capital $1,535,000
Bank Capital

13. Total Assets
Valued at FaceValue
Risk-adjusted Assets
Valued based on
FaceValue x Risk Factors

14. Total Assets Factor
Risk-Adjusted
Assets
Loans $14,000,000 100% $14,000,000
Mortgages $3,500,000 50% $1,750,000
Interbank Deposits $2,000,000 20% $400,000
Government
Securities
$3,000,000 0% $0
Reserves $1,800,000 0% $0
Letters of Credit $3,000,000 100% $3,000,000
Totals $27,300,000 $19,150,000
Bank Assets

15. Core Capital $775,000
Total Capital $1,535,000
Total Assets $24,300,000
Risk-Adjusted Assets $19,150,000
Core Capital 4% of Risk-
Adjusted Assets
$766,000 4.00% 4.05%
Total Capital 8% of Risk-
Adjusted Assets
$1,532,000 8.00% 8.02%
Core Capital 3% of Total
Assets
$729,000 3.00% 3.19%
Requirements