The following is a guided set of material that you need to work through and research to help cover material on bank legislation and bank regulation. Through working through this exercise it is hoped that you will develop a fuller understanding of the chronology of bank legislation/regulation as well as some of the implications and innovations that arose out of bank legislation and bank regulation.
Goals:
- Review bank legislation
- Review bank regulation issues
- Develop a chronology of bank legislation
- Think about implications of regulation and legislation
- Think about innovations arising out of regulation and legislation
1. Fill in the following chart:
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Year
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Legislation
|
Alternative Name
|
|
|
National Banking Act
|
X
|
|
|
Federal Reserve Act
|
X
|
|
|
McFadden Act
|
X
|
|
|
Glass-Steagall Act
|
|
|
|
Banking Act of 1935
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X
|
|
|
Bank Holding Company Act and Douglas Amendment
|
X
|
|
|
DIDMCA
|
|
|
|
Garn-St. Germain Act
|
|
|
|
Competitive Equality in Banking Act
|
|
|
|
FIRREA
|
|
|
|
FDICIA
|
|
|
|
Riegle-Neal Interstate Banking and Branching and Efficiency Act
|
X
|
|
|
Gramm-Leahy-Bliley Financial Services Modernization Act
|
X
|
2. Define the following terms:
- Bank of the U.S.
- Second Bank of the U.S.
- Dual Banking System
- Bank Charters
- Federal Reserve System
- FDIC
- FSLIC
- Comptroller of the Currency
- CAMELS System
- Bank Holding Companies
- Nonbank Banking
- Forbearance
- Too big to fail
- Leverage Ratio
- Off-balance Sheet Activities
- Adverse Selection
- Moral Hazard
- Money Center Banks
- Return on Assets
- Return on Equity
- Equity Multiplier
- Compensating Balances
- Credit Rationing
- Financial Disintermediation
- Deposit Rate Ceilings
- NOW Account
- Sweep Account
- Superregional Banks
- Junk Bonds
- Securitization
- Commercial Paper Market
- Money Market Mutual Funds
- Disintermediation
- Regulation Q
- Lender of last resort
- Systemic risk
- Regulatory forbearance
- Call Reports
- Fill in the following table.
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Institution
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Regulatory Agency with responsibility for regulation of institution
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Regulatory Agency that conducts on-site examinations (post FDICIA)
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National Banks
|
|
|
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State Banks that are members of the Federal Reserve System
|
|
|
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State Banks that are not members of the Federal Reserve System but carry FDIC insurance
|
|
|
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State Banks that are not members of the Federal Reserve System and that do not carry FDIC insurance
|
|
|
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Bank Holding Companies
|
|
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Question 4: In this question you are asked to identify the financial innovation(s) that occurred as a result of a regulatory restriction and/or a change in the economic environment. For each of the following situations identify the financial innovation that occurred.
a. Restrictions on interest being earned on deposits
b. Avoidance of reserve requirements
c. Use of liabilities by banks to provide banks with reserves and liquidity
d. Responding to the volatility of interest rates
e. Improvement in computer and telecommunications technology
f. Restrictions with regard to branching
g. Loosening of restrictions with regard to interstate branching
Question 5: Discuss four different financial innovations that have contributed to the decline of traditional banking activities. How have they contributed to this decline?
Question 6:
A. What does the term "loophole mining" mean?
B. Identify the three broad sets of regulations that have particularly led to loophole mining on the part of the banking industry.
C. Discuss four examples of loophole mining.
Question 7: Here are eight possible matches for the following phrases:
a. Competitive Equality Bank Act of 1987
b. McFadden Act
c. Glass-Steagall Act of 1933
d. Riegle-Neal Interstate Banking and Branching Efficiency Act
e. Office of the Comptroller of the Currency
f. Junk Bonds
g. Gramm-Leach-Bliley Financial Services Modernization Act of 1999
h. Commercial Paper
Identify out of the above list the best match for the following:
1. Short-term debt security ______
2. Moratorium on new nonbank banks _____
3. Fallen angels _____
4. Expansion of regional compacts to the entire nation _____
5. Prohibition of interstate banking _____
6. Legislative Act that encouraged bank consolidation _____
7. Prohibition for banks underwriting corporate securities _____
8. Regulator for bank subsidiaries that underwrite securities _____
9. Separation of banking and other financial services industries _____
10. Purchase of banks by securities firms and insurance companies allowed _____
11. Prohibition of banks engaging in brokerage services _____
Question 8: What is the payoff method? What is the purchase and assumption method? Compare and contrast these two methods the FDIC uses to handle a failed bank.
Question 9: Explain why the too-big-to-fail policy creates a moral hazard problem.