Chapter Two  The Impact of Government Policy and     Regulation on Banking and the       Financial-Services Industry      ...
Reasons for the Regulation of Banks  • Protection of the Safety of the Public’s Savings  • Control of the Supply of Money ...
Principal Regulatory Agencies  • Federal Reserve System  • Comptroller of the Currency  • Federal Deposit Insurance Corpor...
Laws Limiting Bank Lending and                     Risk  • National Banking Act  • Federal Reserve Act  • Glass Steagall A...
Laws Restricting Services Banks and    Other Depository Institutions Can                  Offer  • National Banking Act  •...
Laws Expanding the Services Banks     and Other Depository Institutions                Can Offer  • Depository Institution...
Laws Prohibiting Discrimination in             Offering Services  • Equal Credit Opportunity Act  • Community Reinvestment...
Laws Mandating Increased                 Information to Consumers  • Consumer Credit Protection Act  • Competitive Equalit...
Laws Requiring More Accurate                Financial Reporting  • Sarbanes-Oxley ActMcGraw-Hill/Irwin                    ...
Laws Regulating Branch Banking • Glass-Steagall Act – Banking Act of 1933 • Riegle-Neal Interstate Banking and   Branching...
Laws Regulating Holding Company                 Activity  • Bank Holding Company Act  • Riegle-Neal Interstate Banking and...
Laws Regulating Bank Mergers  • Bank Merger Act  • Riegle-Neal Interstate Banking and    Branching Efficiency ActMcGraw-Hi...
Laws Assisting Federal Agencies in      Dealing with Failing Depository                Institutions  • Garn-St. Germain De...
Laws Requiring Sharing of Customer   Information with the Government  • Bank Secrecy Act  • USA Patriot ActMcGraw-Hill/Irw...
National Banking Act (1863,1864)  • Passed During the Civil War to Help Fund    the War  • Created A New Division of the T...
Federal Reserve Act of 1913  • Passed After a Series of Financial Panics at    the Beginning of the Century  • Created the...
Glass-Steagall Act 1933 • Passed During the Great Depression • Separated Investment and Commercial   Banking • Created the...
FDIC Act 1935  • Addressed the Issues Left Out of the    Glass-Steagall Act  • Gave the FDIC the Power to Examine    Banks...
Social Responsibility Acts  • 1968 – Full Information on Terms of Loans    Must be Given  • 1974 – Cannot Be Denied a Loan...
Depository Institution Deregulation       and Monetary Control Act             (DIDMCA) 1980  • First of Deregulation Acts...
Garn-St. Germain Act 1982  • Continued the Deregulation of DIDMCA  • Created Money Market Deposit Account  • FDIC Could Ar...
Competitive Equality in Banking Act                 1987  • Allowed Creation of Special Bridge Banks    for Failed Institu...
Financial Institutions Reform, Recovery   and Enforcement Act (FIRREA) 1989• Created in Response to Large Number of Bank a...
FDIC Improvement Act 1991  • Move Towards Re-regulating the Industry  • Requires Regulators to Take Prompt    Corrective A...
Riegle-Neal Acts 1994  • Bank Holding Company Can Acquire Banks    Nationwide  • Consolidation of Interstate BHCs into Bra...
Gramm-Leach-Bliley Act 1999  • Permits Banking-Insurance-Securities Affiliations  • Consumer Protections for Consumers Pur...
The USA Patriot Act 2001  • Requires Banks and Financial Service    Providers to Establish the Identity of their    Custom...
The Sarbanes–Oxley Accounting               Standards Act 2002  • Creates Panel to Promote Accurate and    Objective Audit...
Fair and Accurate Credit             Transactions (FACT) Act 2003  • Passed in Response to Increased Problem    of Identit...
Check 21 2004  • Reduces the Need for Banks to Transport    Paper Checks  • Can Provide a Customer with ‘Substitute’    Ch...
Federal Deposit Insurance Reform                  Act 2006  • First Significant Increase FDIC Coverage in 25    years  • R...
Regulating Nonbank Financial-                      Service• Credit Unions                                     • Finance Co...
Organizational Structure of the              Federal Reserve System  • Board of Governors  • Federal Open Market Committee...
European Central Bank  • Central Policy is to Maintain Price    Stability  • Structure is Similar to the Federal Reserve  ...
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Chapter 02

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Chapter 02

  1. 1. Chapter Two The Impact of Government Policy and Regulation on Banking and the Financial-Services Industry ©2008 The McGraw-Hill Companies,McGraw-Hill/Irwin All Rights Reserved
  2. 2. Reasons for the Regulation of Banks • Protection of the Safety of the Public’s Savings • Control of the Supply of Money and Credit • Ensure Equal Opportunity and Fairness in Access to Credit • Promote Public Confidence in the Financial System • Avoid Concentration of Power • Support of Government Activities • Help for Special Segments of the EconomyMcGraw-Hill/Irwin 2-2 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  3. 3. Principal Regulatory Agencies • Federal Reserve System • Comptroller of the Currency • Federal Deposit Insurance Corporation • Department of Justice • Securities and Exchange Commission • State Banking Boards or CommissionsMcGraw-Hill/Irwin 2-3 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  4. 4. Laws Limiting Bank Lending and Risk • National Banking Act • Federal Reserve Act • Glass Steagall Act – Banking Act of 1933McGraw-Hill/Irwin 2-4 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  5. 5. Laws Restricting Services Banks and Other Depository Institutions Can Offer • National Banking Act • Glass-Steagall Act – Banking Act of 1933 • Competitive Equality in Banking Act • FDIC Improvement ActMcGraw-Hill/Irwin 2-5 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  6. 6. Laws Expanding the Services Banks and Other Depository Institutions Can Offer • Depository Institution Deregulation and Monetary Control Act (DIDMCA) • Garn-St. Germain Act • Gramm-Leach-Bliley ActMcGraw-Hill/Irwin 2-6 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  7. 7. Laws Prohibiting Discrimination in Offering Services • Equal Credit Opportunity Act • Community Reinvestment ActMcGraw-Hill/Irwin 2-7 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  8. 8. Laws Mandating Increased Information to Consumers • Consumer Credit Protection Act • Competitive Equality in Banking Act • Truth in Savings Act • Gramm-Leach-Bliley Act • Fair and Accurate Transaction ActMcGraw-Hill/Irwin 2-8 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  9. 9. Laws Requiring More Accurate Financial Reporting • Sarbanes-Oxley ActMcGraw-Hill/Irwin 2-9 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  10. 10. Laws Regulating Branch Banking • Glass-Steagall Act – Banking Act of 1933 • Riegle-Neal Interstate Banking and Branching Efficiency ActMcGraw-Hill/Irwin 2-10 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  11. 11. Laws Regulating Holding Company Activity • Bank Holding Company Act • Riegle-Neal Interstate Banking and Branching Efficiency Act • Gramm-Leach-Bliley ActMcGraw-Hill/Irwin 2-11 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  12. 12. Laws Regulating Bank Mergers • Bank Merger Act • Riegle-Neal Interstate Banking and Branching Efficiency ActMcGraw-Hill/Irwin 2-12 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  13. 13. Laws Assisting Federal Agencies in Dealing with Failing Depository Institutions • Garn-St. Germain Depository Institutions Act • Competitive Equality in Banking Act • Financial Institutions reform, Recovery and Enforcement Act • FDIC Improvement Act • Federal Deposit Insurance Reform ActMcGraw-Hill/Irwin 2-13 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  14. 14. Laws Requiring Sharing of Customer Information with the Government • Bank Secrecy Act • USA Patriot ActMcGraw-Hill/Irwin 2-14 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  15. 15. National Banking Act (1863,1864) • Passed During the Civil War to Help Fund the War • Created A New Division of the Treasury, the Comptroller of the Currency • Created National Banks with a Federal CharterMcGraw-Hill/Irwin 2-15 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  16. 16. Federal Reserve Act of 1913 • Passed After a Series of Financial Panics at the Beginning of the Century • Created the Federal Reserve System • Gave the Fed the Authority to Act as the Lender of Last Resort • Created to Provide a Number of Services to Member Banks • Today the Fed Controls the Money SupplyMcGraw-Hill/Irwin 2-16 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  17. 17. Glass-Steagall Act 1933 • Passed During the Great Depression • Separated Investment and Commercial Banking • Created the FDIC • Fed Given the Power to Set Margin Requirements • Prohibited Interest to be Paid on Checking AccountsMcGraw-Hill/Irwin 2-17 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  18. 18. FDIC Act 1935 • Addressed the Issues Left Out of the Glass-Steagall Act • Gave the FDIC the Power to Examine Banks and Take Necessary ActionMcGraw-Hill/Irwin 2-18 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  19. 19. Social Responsibility Acts • 1968 – Full Information on Terms of Loans Must be Given • 1974 – Cannot Be Denied a Loan Based on Age, Sex, Race, National Origin or Religion • 1977 – Cannot Discriminate Based on the Neighborhood in Which Borrower Resides • 1987 and 1991 – Banks Must Disclose Full Terms on Deposit and Savings AccountsMcGraw-Hill/Irwin 2-19 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  20. 20. Depository Institution Deregulation and Monetary Control Act (DIDMCA) 1980 • First of Deregulation Acts • Phased Out Interest Rate Ceilings • Allowed Interest to be Paid on Checking Accounts (NOW Accounts) • Term Transaction Account Created – All Institutions with These Accounts Subject to Reserve RequirementsMcGraw-Hill/Irwin 2-20 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  21. 21. Garn-St. Germain Act 1982 • Continued the Deregulation of DIDMCA • Created Money Market Deposit Account • FDIC Could Arrange Mergers Across State Lines if Needed • Loan Limits were Liberalized • Banks in Need of Capital Could Get It From the FDICMcGraw-Hill/Irwin 2-21 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  22. 22. Competitive Equality in Banking Act 1987 • Allowed Creation of Special Bridge Banks for Failed Institutions • Bridge Banks Are Special National Banks Operated by the FDIC • Bridge Banks Created When Bank is Essential to the CommunityMcGraw-Hill/Irwin 2-22 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  23. 23. Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) 1989• Created in Response to Large Number of Bank and S&L Failures• Combined FDIC and FSLIC into the FDIC and Dismantled S&L Regulatory Body• Created the RTC to Take on the Assets of Failed S&Ls• $50 Billion Authorized to Handle Failed Institutions (Later Increased)• Allowed Bank Holding Companies to Purchase Savings BanksMcGraw-Hill/Irwin 2-23 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  24. 24. FDIC Improvement Act 1991 • Move Towards Re-regulating the Industry • Requires Regulators to Take Prompt Corrective Action When a Bank has Problems • Prompt Corrective Action Based on the Capital Position of the Bank • Requires Regulators to Develop New Standards for the Banks They RegulateMcGraw-Hill/Irwin 2-24 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  25. 25. Riegle-Neal Acts 1994 • Bank Holding Company Can Acquire Banks Nationwide • Consolidation of Interstate BHCs into Branches • Smaller Well Managed Banks Only Examined Every 18 Months • Community Development Fund Created to Promote Development of Depressed Local CommunitiesMcGraw-Hill/Irwin 2-25 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  26. 26. Gramm-Leach-Bliley Act 1999 • Permits Banking-Insurance-Securities Affiliations • Consumer Protections for Consumers Purchasing Insurance Through a Bank • Must Disclose Policies Regarding the Sharing of Customers’ Private Information • Customers are Allowed to ‘Opt Out’ of Private Information Sharing • Fees for ATM Use Must be Clearly Disclosed • Federal Crime to Use Fraud or Deception to Steal Someone’s Account or Personal InformationMcGraw-Hill/Irwin 2-26 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  27. 27. The USA Patriot Act 2001 • Requires Banks and Financial Service Providers to Establish the Identity of their Customers • Requires Banks and Financial Service Providers to Check the Customer’s ID Against Government-Supplied Lists of Possible Terrorists and Terrorist Organizations • Report Suspicious Activity in Customer’s Account to the US TreasuryMcGraw-Hill/Irwin 2-27 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  28. 28. The Sarbanes–Oxley Accounting Standards Act 2002 • Creates Panel to Promote Accurate and Objective Audits of Public Companies • Top Corporate Officers Must Vouch for the Accuracy of their Companies’ Financial StatementsMcGraw-Hill/Irwin 2-28 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  29. 29. Fair and Accurate Credit Transactions (FACT) Act 2003 • Passed in Response to Increased Problem of Identity Theft • Federal Trade Commission Must Make it Easier for Consumers Victimized to File Theft Report • Individuals and Families are Entitled to One Free Credit Report Each YearMcGraw-Hill/Irwin 2-29 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  30. 30. Check 21 2004 • Reduces the Need for Banks to Transport Paper Checks • Can Provide a Customer with ‘Substitute’ Check Which Contains Image of Front and Back of Original Check • Allows for Electronic Transmission of ‘Substitute’ Checks for Clearing of ChecksMcGraw-Hill/Irwin 2-30 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  31. 31. Federal Deposit Insurance Reform Act 2006 • First Significant Increase FDIC Coverage in 25 years • Raises FDIC Insurance Limits from $100,000 to $250,000 for Certain Retirement Deposits • FDIC and NCUA are Empowered to Adjust Deposit Insurance Limits Every 5 years for Inflation • Merges Bank Insurance Fund and Savings Association Insurance FundsMcGraw-Hill/Irwin 2-31 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  32. 32. Regulating Nonbank Financial- Service• Credit Unions • Finance Companies – National Credit Union – State Governments Administration • Mutual Funds• Savings Associations – Securities and Exchange – Office of Thrift Supervision Commission• Money Market Funds • Securities Brokers and – Securities and Exchange Dealers Commission – Securities and Exchange• Insurance Companies Commission – State Insurance • Financial Conglomerates Commissions – Functional RegulationMcGraw-Hill/Irwin 2-32 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  33. 33. Organizational Structure of the Federal Reserve System • Board of Governors • Federal Open Market Committee • 12 Federal Reserve Banks • Member BanksMcGraw-Hill/Irwin 2-33 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e
  34. 34. European Central Bank • Central Policy is to Maintain Price Stability • Structure is Similar to the Federal Reserve • Eleven Member NationsMcGraw-Hill/Irwin 2-34 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Bank Management and Financial Services, 7/e

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