Regulation of commercial banks-fbi
For most developed countries the late 20th century was marked by a notable easing of regulations and restrictions in the banking industry. In the United States, for example, many regulations had originated in response to problems experienced during the Great Depression, especially in 1933, when the federal government closed the country’s banks and permitted only those deemed solvent to reopen. By the end of the century the risk of widespread economic failure, such as that experienced in the Great Depression, was widely regarded as unlikely.
That perception changed dramatically in 2008, however, when a steep decline in the value of mortgage-backed securities precipitated a global financial crisis and the worst economic downturn in the United States since the Great Depression. Legislation subsequently adopted in the United States partially restored some Depression-era regulations and imposed significant new restrictions on derivatives trading by banks.
Entry, branching, and financial-services restrictions
Historically, many countries restricted entry into the banking business by granting special charters to select firms. While the practice of granting charters has become obsolete, many countries effectively limit or prevent foreign banks or subsidiaries from entering their banking markets and thereby insulate their domestic banking industries from foreign competition.
In the United States through much of the 20th century, a combination of federal and state regulations, such as the Banking Act of 1933, also known as the Glass-Steagall Act, prohibited interstate banking, prevented banks from trading in securities and insurance, and established the Federal Deposit Insurance Corporation (FDIC). Although the intent of the Depression-era legislation was the prevention of banking collapses, in many cases states prohibited statewide branch banking owing to the political influence of small-town bankers interested in limiting their competitors by creating geographic monopolies. Eventually competition from nonbank financial services firms, such as investment companies, loosened the banks’ hold on their local markets.
In large cities and small towns alike, securities firms and insurance companies began marketing a range of liquid financial instruments, some of which could serve as checking accounts. Rapid changes in financial structure and the increasingly competitive supply of financial services led to the passage of the Depository Institutions Deregulation and Monetary Control Act in 1980. Its principal objectives were to improve monetary control and equalize its cost among depository institutions, to remove impediments to competition for funds by depository institutions while allowing the small saver a market rate of return, and to expand the availability of financial services to the public and reduce competitive inequalities between the financial institutions offering them.
In 1994 interstate branch banking became legal in the United States through the passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act. Finally, in 1999 the Financial Services Modernization Act, also known as the Gramm-Leach-Bliley Act, repealed provisions of the Glass-Steagall Act that had prevented banks, securities firms, and insurance companies from entering each other’s markets, allowing for a series of mergers that created the country’s first “megabanks.”
Comments
Post a Comment