US Financial Regulation

8 Key excerpts on "US Financial Regulation"

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  US Financial Regulation and the Level Playing Field

  • H. Garten(Author)
  • 2001(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Thus, US regula- tion played a role both in restoring financial markets to health and in maintaining competition between those markets. That regulation facilitated the growth of active and highly competitive financial markets explains a contradiction that may puzzle non-US observers: US financial institutions are the most heavily regulated in the world, but US financial markets are highly competitive and largely unrestricted, particularly compared with rival national financial markets. This pattern reflects the regulatory philosophy, described at the start of this chapter, that views the proper role of regulation as guaran- teeing competitors equal starting positions so that, in the ensuing competition, government can adopt a hands-off attitude, allowing 56 US Financial Regulation and the Level Playing Field free markets to determine competitive outcomes. This approach charac- terized the regulation of the 1930s, which served the dual goals of preserving competitive financial markets and handicapping the players to ensure that markets would remain competitive. Regulation also encouraged financial firms to adopt survival strategies that have positioned them well for global competition. For example, most observers agree that US markets and financial institutions are characterized by a high degree of specialization and innovation. Scholars argue that the link between specialization and innovation is not coinci- dental. Financial innovation is generally associated with the introduc- tion of new financing techniques, usually through the securities markets, that challenge traditional financial intermediation. In oligopo- listic financial markets dominated by universal banks, however, incen- tives to innovate are weak because universal banks must be concerned about the competitive impact of innovation on their traditional finan- cial products.

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  Corporate Fraud and Corruption

  A Holistic Approach to Preventing Financial Crises

  • M. Krambia-Kapardis(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  CHAPTER 2 Financial Crisis Prevention Through Regulation Introduction: Precursors of Financial Crises A financial system consists of legal rules, firms, and markets, with the finan- cial firms including commercial banks, investment funds, financial market participants, and government entities that purchase, guarantee, and provide security for mortgages (Anabtawi and Schwarcz 2013, 86). Financial firms and financial markets operate in the context of various regulatory bodies that, to a lesser or greater degree, “govern the provision, allocation, and deployment of financial capital” (p. 86). 1 At the same time, relevant legislation provides for penalties to (a) prevent breaches of the regulatory framework, (b) miti- gate the adverse consequences of breaches of the regulatory framework, and (c) reduce the likelihood of further losses (Anabtawi and Schwarcz 2013, 84). Designed to ensure the stability and safety of depository financial insti- tutions and to protect consumers, government financial regulations in the United States can be traced to the 1933 Banking Act, 2 which was introduced to address problems that had contributed to the Great Depression. It tried to do that by inter alia creating the Federal Deposit Insurance Corporation (FDIC) to insure deposits in banks, compelling national banks to comply with federal regulations, and imposing restrictions on how much commer- cial banks could loan. Similarly, legislation was introduced to regulate other depository institutions, namely, the 1933 Securities Act (for the securities markets), the Federal Home Loan Bank Board in 1933 (for the savings and loan associations), and the Bureau of Federal Credit Unions in 1934 (for credit unions).

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  Economics for Investment Decision Makers

  Micro, Macro, and International Economics

  • Christopher D. Piros, Jerald E. Pinto(Authors)
  • 2013(Publication Date)
  • Wiley

    (Publisher)

   The focus of regulators in financial markets includes prudential supervision, financial stability, market integrity, and economic growth, among others.  Regulators—in assessing regulation and regulatory outcomes—should conduct ongoing cost-benefit analyses, develop techniques to enhance the measurement of these analyses, and use economic principles for guidance.  Net regulatory burden to the entity of interest is an important consideration for an analyst. PRACTICE PROBLEMS The following information relates to Questions 1 through 6. 32 Tiu Asset Management (TAM) recently hired Jonna Yun. Yun is a member of TAM’s Global Equity portfolio team and is assigned the task of analyzing the effects of regulation on the U.S. financial services sector. In her first report to the team, Yun makes the following statements: Statement 1: “The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), enacted on 21 July 2010 by the U.S. Congress, will have a significant effect on U.S. banks and other financial services firms.” Statement 2: “The U.S. Securities and Exchange Commission (SEC) allocates certain regulatory responsibilities to the Financial Industry Regulatory Authority (FINRA), with the goal of ensuring that the securities industry operates fairly and honestly.” Statement 3: “The Dodd-Frank Act called for derivatives reforms, including shifting from bilateral to centralized derivatives settlement, by July 2011. The G-20 called for action by its members on derivatives reform by year-end 2012. The accelerated time line of the Dodd-Frank Act concerned some U.S. firms.” Statement 4: “Regulators use various tools to intervene in the financial services sector.” Statement 5: “Regulations may bring benefits to the U.S. economy, but they may also have unanticipated costly effects.” Statement 6: “Regulation Q imposed a ceiling on interest rates paid by banks for certain bank deposits.” 32 These practice problems were developed by E.

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  International Regulatory Rivalry in Open Economies: The Impact of Deregulation on the US and UK Financial Markets

  The Impact of Deregulation on the US and UK Financial Markets

  • Doha M. Abdelhamid(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Chapter 5 The US Financial Markets’ Regulatory Framework and Deregulation I. Introduction The competitive financial deregulations which took place in the US in the 1970s and 1980s succeeded in penetrating a regulatory framework developed mostly in the environment of the 1930s’ Great Depression and the interventionist ideologies that prevailed at the time. The present chapter has, therefore, three aims: a) to provide the reader with an overview of the origins, evolution and cultural peculiarities of the US regulatory framework; b) to provide the reader with an overview of the regulators’ powers, overlapping jurisdiction and the areas instigating domestic regulatory skirmishes, a marked feature of the deregulation era; and c) to discuss the major proposals for restructuring the system from its inception till the Clinton Administration. The first goal is covered in Sections II and III; the second in Section III; and the third in Section IV. The chapter concludes with an assessment of the American framework’s advantages and drawbacks in an open environment which contrasts, to a great extent, with the closed ambiance that followed the 1930s’ troubles.I . II. The Old Days of Financial Supervision Financial regulation has a direct relationship with the growth of markets and institutions. As markets expand, fraud, collapses and crises become more likely while firms enter into new lines of activity and utilize every opportunity for fast gains. Collapses, fraud and crises motivate government regulatory intervention to rectify damage and devise detailed frameworks for crisis prevention. The Anglo-American financial system dates back to the seventeenth century’s colonial period. It rested mainly on the provision of goods and services by English merchants (supported by British banks) to their American markets. The presence of small scale, government-owned land banks was for purposes of

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  Financial Market Regulation and Reforms in Emerging Markets

  • Masahiro Kawai, Eswar S. Prasad(Authors)
  • 2011(Publication Date)
  • Brookings Institution Press and ADBI

    (Publisher)

  75 3 Evaluating the U.S. Plans for Financial Regulatory Reform douglas j. elliott T he administration has proposed a series of major changes to U.S. financial regulation to respond to the issues raised by the financial crisis. This chapter describes and evaluates those proposals with a particular eye toward their implica-tions for the regulation of finance in emerging market economies. Before going into the specifics of the reform proposals, I start by reviewing the major explana-tions of the financial crisis, since they affect the choice of remedies, and then discuss the underlying principles of U.S. financial regulation for which there is broad agreement and therefore little pressure for change. In fact, the consensus on these points is so strong that there is very little discussion of these basics. The remainder of the chapter explains the major legislative proposals in some detail. Views of the Crisis and Their Effect on Regulatory Reform People instinctively try to understand complex situations by hanging the facts on a simple story line. 1 For example, America’s entry into World War I came to be seen after the fact as the result of financiers looking to protect their loans to Europe and U.S. trade flows. This attitude played a major role in the isolationism that kept the United States out of World War II until it was actually attacked. Similarly, one of This chapter was written before legislation for regulatory reforms in the United States was final-ized. While some of the personalities have changed and some reforms have taken more concrete shape, the analytical discussion in this chapter remains very much relevant. 1. This section draws heavily on Elliott and Baily (2009). 76 douglas elliott the earliest American theories of the Great Depression was that it sprang from the crash on Wall Street, which came to be associated with financial manipulation by bankers and rich speculators.

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  The Future of International Law

  Global Government

  • Joel P. Trachtman(Author)
  • 2013(Publication Date)
  • Cambridge University Press

    (Publisher)

  Certainly, as finance has become more complex, there may be greater economies of scale in developing the necessary regulatory capacities. Economies of scale may provide motivation for integration, in the sense that the economies of scale tilt the cost-benefit analysis in favor of integration. D) REGULATORY COMPETITION Technological advances, globalization, innovation, and growth have com- bined to make finance both actually and virtually rather footloose. Mobility exists both on the producer and consumer side of the equation. On the other hand, Joseph Stiglitz has argued that the part of the financial system that is critical to the real economy – the part that lends to Main Street business – is not as footloose as the more speculative part of the financial system. 289 Prior to the 2008 financial crisis, there had been some evidence of movement away from U.S. capital markets, arguably because of increasingly stringent regula- tion. However, no one has identified a move from the United States as being motivated by a desire for more onerous regulation. Indeed, the crisis may turn out to prove that we cannot rely on the capacity of private actors to leave a juris- diction with inadequate financial regulation. The class of persons protected by regulation seemed in this case to lack the ability to evaluate and identify inadequate regulation. The broader a financial institution’s powers, the lower its capital require- ments, and the greater the government safety net, the more profitable it is likely to be. Increased powers permit greater profits, lower capital require- ments impose lower costs, and the government safety net operates as a subsidy. Therefore, a financial institution exclusively regulated by a jurisdiction that 288 See Trachtman, supra note 30 (1993). 289 Joseph Stiglitz, “Watchdogs Need Not Bark Together,” Financial Times (Feb. 9, 2010). Retrieved from http://www.ft.com/intl/cms/s/0/3ebddd1e- 15b7- 11df-ad7e- 00144feab49a.html# axzz209opqevy.

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  New Regulation of the Financial Industry

  • D. Chorafas(Author)
  • 2000(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Increasingly, banks come to appreciate that new products are necessary for survival. But innovation cannot be enacted, let alone sustained, without a technological leap forward. Networks, and most particularly Internet-type any-to-any connectivity have created a new level of competitiveness. Among other things, this has meant that not only banking but also other dynamic branches of industry have become global. Globality presents new business opportunities but also poses complex regulatory problems. It is therefore to be expected that legislators and regu- lators will push for revamping existing laws and rules conditioning the banking industry, albeit at a slower pace than new events evolve. This leaves some gaping holes in the prudential supervision of the banking industry. The capital market’s role in the world economy has expanded sharply in the 1990s. Traditionally, the capital market functioned mostly as a vehicle for raising capital for investment, but today it performs a multiple duty by financing: • capital investments; • domestic consumption; • trade deficits; and • new, leveraged financial instruments. What is global regulation all about? Webster’s defines regulation as: ‘The act of reducing to order; disposing in accordance with rule or established cus- tom.’ A new regulatory environment implies changes in existing relations 24 The Regulation of Financial Institutions regarding future and forward interest rates; OTC trades on currency exchange rates; lines of business such as the securitisation of all types of loans; the development and marketing of new banking products; and trad- ing in derivatives.

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  The Evolution of US Finance: v. 2: Restructuring Institutions and Markets

  • Jane W. D'Arista(Author)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

  However, as the increase in the number and importance of instruments and markets that are outside the existing regulatory framework suggests, these changes have in many instances eroded the effectiveness of the existing regulatory framework and made geographic restrictions obsolete. Opportunities exist for regulators to improve surveillance through wider use of industry-wide computerized communications systems of-fered directly by federal regulators or through self-regulatory groups, but, except in a few instances, these opportunities have been underuti-lized. Improved surveillance of markets used by depository institutions as weH as by the securities industry will not resolve aH the regulatory issues raised by technological innovation, but it would be a necessary component in a regulatory structure that places greater reliance on mar-ketforces. The Intemationalization of Financial Institutions and Markets The impact of an increased degree of global interdependence on the U.S. economy was widely understood by the end of the 1980s. While much of the attention to this development had focused on trade-in particular, the increase in U.S. exports and imports as a share of GNP and the effects 102 FINANClAL STRUCTURE AND REGULATION of huge deficits in the trade balance on economic growth-the im-plications of financial interdependence were also widely acknowledged. The shift in the international investment position of the United States from creditor to debtor status heightened awareness of the impact of international capital flows on domestic credit markets and of the con-straints on domestic economic policy that debtor nations experience. As yet, the United States has been unable to halt the increase in its external debt by becoming a net exporter of goods and services. It must, therefore, export a rising amount of capital to service its debt.

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