Bank Regulation in the United States (original) (raw)
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Bank Regulation in the United States -super-1
Cesifo Economic Studies, 2010
There have been major changes in the banking system structure and several new banking laws over time that have had major impact on banks in the USA. In response to the 1980s and early 1990s crisis, and the more recent mortgage market meltdown that began in the summer of 2007, the banking industry and regulations governing banks changed profoundly and rapidly with even more changes likely to take place. It is therefore important to delineate the nature of these changes, particularly in comparison to the pre-crisis character of the US banking system and regulatory environment. In particular, this article discusses the regulatory changes that have emerged in response to the decline in the role of banks in firms' external financing, and the rise in noninterest-generating activities; the blurring of distinctions between banks and other depository institutions, and between banking companies and other financial intermediaries; the growing complexity of banking organizations, both in a corporate hierarchy sense, and with respect to the range of activities in which they can engage; the more intense globalization of banking; and the subprime mortgage market meltdown that triggered a credit crunch and liquidity freeze that led to the worst recession in the USA since the Great Depression.
Brazilian Keynesian Review
Based on the Post-Keynesian approach, we argue that commercial banks, through the financial reforms of 1980 and 1999, which made financial institutions more flexible, increased their capacity to operate in the capital market by becoming Banking Financial Holding Companies. The 2007/2008 crisis is understood as a consequence of financial deregulation and financial innovation process that weakened the Federal Reserve's capacity to restrain banking activity. Initially, we discuss the new institutional context that emerged from these changes in the financial regulatory framework between 1980 and 1999. Then, we focus on how financial deregulation allowed banking business to advance in financial markets, how this process contributed to the economic crisis of 2007, characterized both as a liquidity crisis and a solvency crisis, safeguarded by the National States. Finally, we analyze the Dodd-Frank Law (2010), which is interpreted as the reaffirmation of this endogenous process of finan...
The accelerating Integration of Banks and Markets and its Implications for Regulation
papers.ssrn.com
The banking landscape is in flux. Financial institutions and markets have become deeply intertwined and competitive pressures have intensified. Stability issues have become paramount, aptly illustrated by the credit crisis of 2007-2009. In this paper we review the existing literature to analyze the various implications of these developments and what they portend for bank regulation. We begin by discussing the economics of banking to better understand the fundamental forces driving the financial services industry. We discuss how banks choose between relationship and transaction lending, the role of debt versus equity instruments, and the economic functions of banks. We conclude that banks and markets have become increasingly integrated and co-dependent, and that this is at the root of the 2007-2009 credit crisis. In this context, we also focus on credit rating agencies and new intermediaries like private equity firms, which one could interpret as intermediation driven from the equity side, and examine their impact on financial fragility. We address the regulatory challenge coming from financial fragility, and focus on this in the context of the "mushrooming" of the financial sector with greater diversity in institutions and an increasingly blurred distinction between intermediaries and financial markets.
Emerging Issues in Banking Regulation
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The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMP or lMF poliey. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
A Review of the 1980s and the Current Banking Crisis in the USA
Banking crisis in the USA has become a phenomenon which occurs from time to time. The last banking crisis before the current one took place between 1980 and 1994 after a very long stable period of over 45 years. The current crisis started just barely after 13 years of the 1980s. This dissertation seeks to investigate the causes of the 1980s vis-à-vis the current banking crisis in the US and the reasons for the reoccurrences. Using empirical studies conducted by previous and current researches, we have realised that the current crisis has taken a different tune in terms of causes and this has precipitated the inability of the legislative responses of the 1980s to prevent the current crisis. While the 1980s were basically caused by boom and bust in the oil, agricultural and real estate industry coupled with some sectorial recessions, the current crisis is attributed majorly to the subprime mortgage. The subprime mortgage was fuelled by the high deregulation in the financial market giving way to securitisation and the inundation of the market with highly obnoxious and complex derivatives. A conclusion is arrived here by calling upon all authorities in charged to use history as a guide to chart a smooth path for the future and also to keep up to date with regulations since the financial market is dynamic and moves together with technology.
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B oth the external environment and the internal business practices of banking in the United States changed enormously over the past two decades. (For simplicity, I refer here to any federally insured depositories and their holding companies as banks.) By the middle of the 1980s, the U.S. macroeconomy had suffered through its most turbulent years since the 1930s. Then, seemingly suddenly, real economic activity became much less volatile beginning about the middle of the 1980s. Because some of the public policies that might have been appropriate under different circumstances had become outmoded and provided inappropriate incentives for risk taking, numerous and substantial legislative and regulatory changes were enacted. Financial deregulation was both deep and broad and greatly affected both regulated institutions and regulators. Technological advances in computing and communications that were pertinent to banking lowered the relative prices of such services considerably. Advances in financial techniques and in the ranges of financial products and services offered by, and offered to, banks importantly affected the risks that banks faced and measured as well as the kinds and amounts of risks that banks ultimately decided to retain or to shed.
Financial Modernization Legislation in the United States. Background and Implications
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The Gramm-Leach-Bliley Financial Modernization Act went into effect in the United States in1999. The Act establishes a new framework for affiliations among commercial banks, insurance companies and securities firms through "financial holding companies" and "financial subsidiaries", and establishes guidelines for entry into merchant banking. It moves financial institutions in the United States towards a system of conglomeration that has long existed in continental Europe and elsewhere in the world. This paper reviews important provisions of the new law, provides some comparisons with other countries, and draws some implications for future developments. The immediate effects of the law are not likely to be great, either in the United States or elsewhere. With respect to the integration of financial activities, it merely supports recent trends. At the same time, it requires a continued "separation of banking and commerce", precluding the establishment of t...
Global Regulatory Changes to the Banking Industry after the Financial Crisis: Basel III
The enforcement of new regulations has traditionally been the governments’ strategy to respond to episodes of financial stability. That was the case in, for example, the United States after the market crash that detonated the 1930s “Great Depression”2, with the Glass-Steagall Act, which separated commercial banks from investment banks to eliminate the risk that a stock market collapse could generalize and affect the banking industry. Many years later, the scandals of the Savings and Loans institutions, during the late 1980s, brought about more restrictive regulations on that sector; or the Enron, Xerox, Tyco and others’ fraudulent scandals at the beginning of the 21st century that were at the origin of the Oxley-Sarbanes legislation. Recently, the “Subprime- Mortgages Financial Crisis” of 2007-2009, once again, provoked an encompassing financial sector regulatory revamp in major industrialized countries, home of the largest multinational banks, which were the intermediaries most affected by the crisis, provoking ripple effects across many other countries, and raising the odds that, for the first time, the financial industry’s regulatory framework will finally achieve a supra- national status3. It would be a logical corollary to the enormous economic costs and the dramatic loss of confidence that resulted from the global financial crisis. An increasingly globalized financial industry desperately needs a full revamping of its regulatory framework.