Bank Regulation (US).ppt

Bank Regulation (US) Major Duties: Chartering and Examination Chartering -- Granting the bank permission to begin business. -- National Banks -- State Banks Examination – Supervision of bank activity, including periodic auditing of bank records. Regulators: Commercial Banks Comptroller of the Currency -- charterer and primary examiner of national banks State Banking Authorities -- charterer and primary examiner of state banks Federal Reserve -- secondary examiner of member banks Federal Deposit Insurance Corporation (FDIC) Secondary examiner to some banks Insures bank deposits, guaranteed up to $250,000 per depositor (more for some types of accounts, such as consumer saving for retirement) Deposit Insurance: Pros and Cons Pros -- protects customers -- greatly reduces bank runs Cons -- gives banks implicit incentive to engage in bad business practices Moral Hazard and Adverse Selection Moral Hazard -- Those who have insurance may use it as a “safety net,” a justification to take on greater risk. Adverse Selection -- Insurance tends to attract people most likely to take advantage of it. FDIC -- Resolving Situations With Problem Banks Options: handling problem banks Close bank, pay off depositors (e.g. Freedom National Bank of RI) Merge bank with a healthy bank (e.g. Syracuse Savings Bank) Decisions unique to individual cases (e.g. Bank of New England) - the “too big to fail” policy Regulators -- Savings Banks and Savings and Loans Deposit Insurance: FDIC Primary Examiners: Federal Reserve, FDIC, and Comptroller of the Currency Most Savings and Loans: members of Federal Home Loan Bank System (FHLBS) Regulatory system -- overhauled several times since late 1980s Credit Unions Most are members of the National Credit Union Administration (NCUA). Deposit Insurance: National Credit Union Share Insurance Fund (NCUSIF). No major overhauls to regulatory system. US Banking