Final Exam
Jennifer Ngo
Bus 171A – Xu
December 11, 2015
1) Regulation of the US banking industry; Changes in the industry since the recent recession
-Banks can include commercial banks, savings and loans, and credit unions. Everyday banks are used to make payments, deposits, withdraw, or talk to bankers about options. Regulations are highly important in the banking industry, protecting customers and economically. Banks gain funds by retained earnings, equity securities, savings, loans, and charging interest rates.
There are number of banking regulations, the 1933 the FDIC set an insurance on deposits of $250,000 or more due to previous bank failures. This means that deposits are safe and if a bank does fail, the money
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Any financial institution would consists of financial products, loans, or investment advice and insurance. With this institution, there is data regarding bank information like your account and private financial information. Banks and other institutions were required to maintain confidentiality and not use that to “sell” off any personal information, nor share it.
During the 2008 panic and recessions, many worried that this would soon happen again if there wasn’t additional regulations implemented in preventing another crisis. In 2010, according to Harvard Law, he Dodd-Act was reformers, improving customer protection, reduce possible and future crisis, and end taxpayer bailouts. Another act reformed was Basel, requiring banks to have more sustained capital and increasing bank liquidity reserves. Banks are probably now stronger, healthier now than ever. It is much safer however still risks comes, but have immensely improved in the last decade.
2) Actively managed funds vs. Passive funds; whether fund manager characteristics matter to fund performance
-Actively managed funds are managed by “experts” who choose certain stocks for you, with this there are fees as they are managing for you. According to CNN Money, fees can range from 0.6% to 1%, and with hiring these experts many would assume they would do better and outperform the market. Assuming that these
There are various categories of banking; these include retail banking, directly dealing with small businesses and persons. Commercial and Corporate banking which offers services to medium and large businesses (Koch & MacDonald 2010). Private banking, deals with individuals, offering them one on one service. The last category is investment banking. These help clients to raise capital and often invest in financial markets. Most global banking institutions provide all these services combined. With all these institutions in existence within the same localities and offering similar services, there is a need to regulate the industry so as to protect the consumer and provide fair working environment for all banks (Du & Girma, 2011).
Before the advent of the Federal Deposit Insurance Corporation (FDIC) in 1933 and the general conception of government safety nets, the United States banking industry was quite different than it is today. Depositors assumed substantial default risk and even the slightest changes in consumer confidence could result in complete turmoil within the banking world. In addition, bank managers had almost complete discretion over operations. However, today the financial system is among the most heavily government- regulated sectors of the U.S. economy. This drastic change in public policy resulted directly from the industry’s numerous pre-regulatory failures and major disruptions that produced severe economic and social
The relative successes and failures of that Act are becoming more apparent with time, and the shortcomings are subject to intense partisan criticism. As discussed below, Dodd-Frank seeks to address the highly sensitive and controversial notion that Wall Street banks have been designated by the Federal Reserve as too-big-to-fail. In fact, during the most severe moments of the crisis, the voices of free market proponents could be heard advocating that these troubled big banks, suffering massive losses due to their own bad bets, and if weakened to the point of failure, should be allowed to fail. Hindsight shows that allowing just one to fail, Lehman Brothers, had serious and lasting detrimental effect on the US and global financial system and markets. Had Lehman been saved, it would have been the most effective agent to unwind all of the transactions and trades to which it was a party, and likely in a rapid manner. However, being thrust into bankruptcy, and thereafter receivers were appointed to unwind the business, took months upon months and vast resources to settle Lehman accounts. Had Citibank, Bank of America, Bear Stearns, or AIG been allowed to fail, it may have been possible that the US financial system would have melted down completely. So these super banks, and non-banks, cannot be allowed to fail in crisis, due to the system-wide risk. Notwithstanding, such an implicit assurance, that they will always get a bailout, no matter how toxic
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 Glass-Steagall Act of 1933 that defined the roles for commercial banks, investments banks and insurance firms was over ridden by the Gramm-Leach-Bliley Act (1999) which repealed the provisions that restricted affiliations in financial institutions. Hence one solution is to overcome the incentive problem and the conflict of interests that arise when financial institutions simultaneously undertake financial activities of varied nature.
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
The United States of America’s financial system comprises of the banking system, financial markets and nonbank financial institutions. (Lee, 2001) Banking system furthermore consists of the Federal Reserve System, foreign banks, commercial banks, offshore banks, credit unions and saving institutions. Financial markets consist of debt and money markets, equities markets and futures and options markets. Lastly, nonbank financial institutions consist of asset-based finance companies, commercial lending companies and insurance companies. This paper is an endeavor to understand the workings and structure of the Federal Reserve Banks of USA.
After careful thought and internal discussion, the research general topic of interest to me is the marketing aspects of the banking industry. Considering this are of research, I have further narrowed down this subject into three areas of interest in which to draw a more specific doctoral thesis to pursue.
As I have stated before bank regulations are in place to be the backbone of the U.S. economy. Therefore, we live in a system that affects us every day. Banks have certain requirements and instruments that help them stay open and be profitable. In the 1990s, interstate banking was finally permitted to create nationwide banks of unprecedented size. Congress 's also attempted to force banks to make home loans to people who had limited creditworthiness. These regulations are a major factor in why as many banks failing and disappearing today as we did pre Federal Reserve System.
The United States banking industry has been a problem ever since the fraud and corruption from the market crash of ’08. There have been two sides arguing what we should do to these banks. Many people say, “We need to split up the big banks into smaller banks.” Their argument is that the smaller banks will be easier to monitor to make sure no fraud is going on and it will cause there to be more competition in the industry which will lower interest rates. The other side of the argument where many people also stayed is that the big banks don’t need to be split up. They just need a bailout to get back on their feet and they can sort this mess out. The arguments stand on two principles one side says the banks are corrupt and need to be disbanded, and the other side’s states that the banks are too big to fail; come ground is difficult for these two but they both want to fix the economy.
Explain why commercial banks are regulated and describe the major pieces of legislation enacted to prevent bank failures.
The financial crisis in 2008 was been considered as the worst financial crisis since the Great Depression. One of the major reasons of the crisis was that banks in the States were given permission by the repeal of the Glass-Steagall legislation, which allowed banks to affiliate with insurance, real estate, security. The goal was to create financial firms “better equipped to compete in global financial markets”. With the firewall between commercial banks, which make loans and take deposits, and investment banks, which underwrite securities removed, an opportunity rise for banks to create and push more money and eventually to speculate on financial markets. The financial crisis reminded us that the banking industry has a serious influence
The recent global financial crisis of 2007-2009 has brought people’s attention to the threat presented by a certain type of financial institutions which are imperative to the functioning of the financial system to the extent that the failure or insolvency of such institutions can destabilise the financial system, and subsequently impose serious negative effects on the real economy (Freixas, & Rochet, 2013; Ueda & Weder di Mauro, 2013; Bongini & Nieri, 2014; Elliott & Litan, 2011). These “systemically important financial institutions” (SIFIs) consequently become the main focus of policymakers and regulatory authorities in order to control the systemic risk posed by these entities (Barth et al., 2013). Therefore, this essay aims
Shinhan Bank America is a non-member bank with a headquarters in New York. A non-member bank is a state-chartered commercial bank, but not a member of the Federal Reserve System (“All Institution Types Defined”). It is spread out in five different states with 16 domestic branches, with total assets of $1,308,996,000. The Federal Deposit Insurance Corporation (FDIC) regulates Shinhan Bank America with the purpose of “preserving and promoting public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails” (“Who is the FDIC”).
There is a vast amount of literature available on the additional procyclicality of regulatory capital charges in Pillar 1 of Basel II. In this section, we shall briefly visit this literature and see if any conclusions can be drawn from this, before proceeding to the conclusion and mitigation of these procyclical effects. The majority of the literature, as expected, focuses primarily on the IRB approach, as this aspect of Basel II has drawn the most criticism from financial practitioners and academics alike. The greater part of this literature has found that there is an overwhelmingly substantial rise in procyclicality of minimum regulatory capital charges originating