Bank Regulations : The Backbone Of The U.s. Economy

The banking industry consists of almost sixty-five hundred banks that are insured by the Federal Deposit Insurance Corporation (FDIC). Out of these, there are eighty-one substantially large banks in the United States that are publically traded, which is where the market structure and industry information will be based. However, as with the rest of the country, these banks are very concentrated, with the largest banks accounting for over half of the market as well as accounting for the largest amounts of revenue.

This necessitated the need for development of regulatory measures for the industry. Bank regulation is a legal structure by which all financial

The Federal Reserve Act also required that all nationally chartered banks must be members of the Federal Reserve System. However, it was not met without criticism. It was said to have reflected the rooted dislike and distrust of banks and bankers that has been for many years and there should not be absolute political control over the business of banking. Despite some strong opposition it was made clear that although government influence would be present, it was designed to be free from personal or party politics. The public, much quicker than Wilson had anticipated, as he described the Act as a “constitution of peace” for the private businesses of the nation, accepted the Act quickly. The Act was not perfect, however, and the last sentence of the Act states: "The rights to amend, alter, or repeal this Act is hereby expressly reserved." In fact, an overlying theme of the Federal Reserve Act was one of uncertainty; and many of the provisions used language like "under the rules and regulations to be specified by the Federal Reserve Board," and "subject to review and determination of the Federal Reserve Board." The rules had to be developed as the game was learned. The Federal Reserve Act helped to stabilize the volatile banking system. No longer were banks independent organizations working against each other. Now they were secure interrelated operations. The Federal Reserve Act worked because it eliminated the competition to hoard money

In the year 1776, the Continental Congress adopted the Declaration of Independence, which proclaimed that the new United States of America would govern independently from Great Britain and it’s King. Prompted by unfavorable social protocols, economic policy, and biased tax principles, America began its journey of self-regulation. With America 's population growing in size, mobility, and economic activity, the assortment of banks and money soon grew hectic and unmanageable. Prior to 1913 America was plagued with financial unrest. These times were characterized by economic crises that caused the American people to panic, race to their banks, and withdraw their deposits. Lack of regulation resulted in widespread bank runs that produced a domino; taking the stability of the economy down one bank at a time. These situations proved detrimental because there was no lifeguard, so to speak, to lend a hand when uncertainty overshadowed reason. After enduring a severe crisis in 1907, Congress took initiative and created the Federal Reserve Act of 1913.

Banks are institutions in which people put their money for safekeeping, to save, to use to pay their bills, or to earn interest on. Banks are allowed to use that money to make loans and earn interest for the bank's’ owners. Different types of banks offer different types of services. For example, commercial banks originally just served businesses, and savings banks and credit unions were used by individuals, especially those who couldn’t qualify for loans at regular banks. This is no longer the case. Although commercial banks and thrift institutions used to serve different purposes, today they all offer many of the same types of services including bank accounts, loans, credit, certificates of deposits (CDs), and much more.

During the 1930s, the most prominent reason for U.S. banking regulation was to prevent bank panics and more economic disaster like those that had been experienced during the Great Depression. Later deregulation and financial innovation in industrialized countries during the 1980s eroded banks monopoly power, thus weakening their banking systems and seeming to embody the fears of post-Depression policy makers who instituted regulation in the first place. Fear that individual bank failures could spread across international borders creates pressure to harmonize bank regulation worldwide. One advocate suggests that universal banking, at least for industrialized countries with internationally active banks, would “level the playing field” by eliminating competitive advantages created by government subsidies. Although this is a valid point, one of the major driving forces behind the globalization of the banking world is the ability of banks to take

One thing US banks have in common is that they are all financial institutions regulated by the government—at both the state and federal level.

The concept alone of a central banking system has been around long before the Federal Reserve Act of 1913 was passed. In 1791, Treasury Secretary Alexander Hamilton encouraged Congress to create the First Bank of the United States. Several Americans opposed of it, as they felt somewhat uncomfortable of one bank having all the power. After the bank’s 20 year term in 1811, Congress decided not to renew it by merely one vote. Afterwards there have been multiple other attempts to create a central bank, but they have never succeeded in the long run. That is until The Federal Reserve Act of 1913. President Woodrow Wilson was the one who passed the famous Federal Reserve Act of 1913. If it had not been for the passing of this law, the United States may have never had a central bank, which is a vital part of our economy.

The banking industry as a whole after the stock market crashed was going bankrupt due to not being able to carry the “bad debt” that was created from using customer money to buy stock. Because the banks were out of money, they were unable to cover customer withdrawals from their bank, causing many bank customers to lose all of their savings. With the uncertainty of the future of the banking industry, many people withdrew all of their savings, which caused more than 9,000 banks to close their doors and go out of business (Kelly). Due to the effects of the Great Depression, and the collapse of the banking industry, the government created regulations to prevent similar failure in the future. For Example, the SEC, (or Securities Exchange Commission), which regulates the sell and trade of stocks, bonds and other investments was created as a result of The Great Depression. The FDIC (or Federal Deposit Insurance Corporation), was created to insure bank accounts so that that the consumer would be protected if the bank were to go out of business (Kelly). The Great Depression's effect on the banking industry led to many useful changes to the banking industry and helped restore confidence in banks in the American people.

The old saying the fox is going to watch the henhouse is some of it for same problems we run into with regulators regulating themselves. Part of the systemic problem that existed in the late part of the first decade of the 21st century were government entities known as Fannie Mae and Freddie Mac. Both of these government institutions would just as responsible as the banks themselves for the crisis that took place and sworn new regulation which may not be far-reaching enough.

Apart from the typical functional areas of any organization, which consist of Accounting, Finance, Human Resources, Marketing and Information Technology, the banking industry has slightly different functional areas. The most important area in any commercial bank is the Consumer Lending area, which typically deals with loans in regards to individual and household consumers. This includes home and auto loans, as well as personal loans. Another functional area in the banking industry is the Internal Audit department. The Internal Audit department oversees the effectiveness of the bank’s controls. In governing controls, Internal Audit helps to assess and manage risk for the business.

Due to the financial disruption of the 1930s, the federal government intervened in the banking system for the sake of the banks’ depositors’ protection of their deposits. With this action, the creation of the Federal Deposit Insurance Corporation enabled stability in the economy and the shortcoming banking system during the times of the Great Depression. Still currently utilized, the FDIC ensures trust within the banking system for the reason that depositors acknowledge that their deposits are insured when banks are failing. This backbone of the economy prevents banks from failing and other financial crisis occurring, while simultaneously easing the panic of depositors. The establishment of the Federal Deposit Insurance Corporation creates

Very often than not there are regulations implemented as a means to dissolve an issue that needs to be resolved as soon as possible and is implemented immediately. However these needed resolutions end up affecting the little man such as community banks.

Banks take deposits from savers and pay interest on these accounts. They receive interest on loans when they pass these funds on to borrowers. The spread between the rate they pay for funds and the rate they receive from borrowers is where their profits are derived from. This practice of combining deposits from many sources which can be lent to many borrowers forms a interchange of funds

Financial regulation is necessary and without an efficient set of regulations a country could see rises in unemployment, interest rates, and the deterioration of financial intermediaries. With the globalization of the financial industry, it becomes more and more common for businesses to seek financing outside of their county 's boarders. These innovations in the financial industry stress why it is so important for regulations to be created and changed to reduce risk and asymmetric information in financial systems.