Regulation of Banking and Financial Services Essay

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Regulation of Banking and Financial Services The Failure Process Imposed Upon Financial Institutions The concept of systemic risk sprung to the foreground of the public’s consciousness during the financial crisis of 2007-8 as the Too Big To Fail (TBTF) banks were bailed out by the various US Federal Government agencies e.g., US Treasury via the Troubled Asset Relief Program (TARP) and the US Federal Reserve via Quantitative Easing (QE). However, as it turns out, the concept of systemic risk is not so easy to define in legal terms—as illustrated by the difficulty in nailing down the definition by US Congress via the Dodd-Frank legislation or by the US Treasury and the Federal Deposit Insurance Corporation (FDIC) via regulation (Horton,…show more content…
With a deposit payoff, the bank’s depositors are paid by the FDIC up to the $250,000 FDIC insurance limit with any deposit balance above this limit repaid based on the residual value of the bank’s assets; with a purchase and assumption, a healthy bank purchases some or all of the failed bank’s assets and deposits (Rose & Hudgins, 2013). The goal of the FDIC in resolving the failure of a bank or systemically important non-bank financial institution is to maximize the value of the failed institution’s assets while minimizing the damage to the broader financial system (Guynn, 2012). In conclusion, because of the 2007-8 financial crisis and the resulting Dodd-Frank legislation the era of the TBTF bank and non-bank financial institution is over. The FDIC now has the regulatory authority to liquidate these [formerly] TBTF bank and non-bank financial institutions in an orderly manner. The ultimate goal of the FDIC’s new regulatory powers is to protect the taxpayer from another bailout. Restrictions on Geographic Expansion by Financial Institutions Restrictions on the geographic expansion, aka branching, by bank and non-bank financial institutions in the US has a relatively long history of debate with proponents and opponents of branching posing roughly the same arguments for the duration of the debate (Hendrickson, 2010). The arguments for branching include—that restricting branching (a) limits diversity of deposits and loans; (b)
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