What federal agency guarantees company pensions? The Economist article "Pensions by Default" explains that behavioral finance A shows the extent to which people are swayed by the way choices are framed B shows that people procastinate C shows that people are pessimistic about future returns D shows that workers more readily precommit to increase their savings rate in the future than they will accept higher savings now.
It begins with the fundamental question of: The principal reasons given are to prevent economic disruption, the protect the deposit insurance fund, and for social goals.
Next, the chapter examines why banks fail. The principal reason is credit risk, and an example Didmca and fslic given showing how a bank grows, and subsequently fails when a large loan goes bad and wipes out the capital. The examination of banking legislation begins with a discussion of banking reforms of the s that formed the foundation of our current regulatory structure.
These Acts were outgrowths of the banking crises of the s. The specifications of that frameworkrestrictions on pricing of deposits, restrictions on entry and expansion, restrictions on scope and nature of activities, especially on securities activities, restrictions on leverage, and restrictions on geographical expansionare discussed in detail.
Regulatory reforms since the s and deregulation Didmca and fslic examined next The major legislation includes: These Acts are discussed in considerable detail to put them in an historical perspective with respect to shaping our banking structure.
The banking structure in other countries differs from that in the United States. The universal banks of Germany, clearing banks of the U.
Banking in the European Economic Community EEC is also discussed, as well as the need for international harmonization.
Finally, we examine the dual banking system in the United States, and the role of bank regulators. The chapter ends with a questionis prudential bank regulation effective? The short answer is no, or maybe, depending on what one thinks bank regulation is supposed to do. Outline of the Chapter Why are Banks Regulated?
Is the regulation justified? Banks are regulated for three reasons. First, they are regulated to reduce the risks of failure, both of the individual bank and especially of the banking system.
The prevention of large-scale bank failures that would disrupt the economy is a crucial goal of bank regulation. Second, are regulated to protect the deposit insurance fund.
If the deposit insurance fund is inadequate to bail out failed banks, the taxpayers would have to foot the bill. Third, banks are regulated to achieve desired social goals such as providing credit to low income families.
Whether banking regulation is justified depends on how one weighs the costs and benefits of each of the three reasons for regulation. The first two reasons deal with prudential regulationthe safety and soundness issuesand are not controversial. However, the role of banks in achieving political social goals is a politically charged issue.
The views can range from a banks should not be treated differently than any other profit making enterprise such as McDonalds, to b because of their role as intermediaries, their role in the payments systems, and their role in the monetary transmission process, they have social responsibilities beyond those of other firms.
Why is it important? A bank run exists when depositors withdraw funds due to some individual or general financial panic.
The fact that bank deposits are often payable on demand or in a very short period creates an inherent risk of bank runs. Failure to control a bank run can produce a collapse of the banking system as it did in the early sresulting in a potential collapse in the economy, and the collapse of individual banks Continental Illinois, Bank of New England.
They can lend to creditworthy borrowers, avoid undue concentration of loans, have relatively low loan-to-value ratios, require collateral, and monitor the loans.
The banking crisis of the s involved large numbers of bank failures, many of those in agricultural areas, in the late s and early s that ultimately producedChapter 2 The Bank Regulatory Environment16a collapse of the existing system.
Since it was commonly believed that this crisis was caused by banks taking excessive risk in their lending and investing activities, including through underwriting corporate securities, and through paying excessive rates on deposits, including demand deposits, the attempt was made to restrict bank risk-taking through new legislation and regulation.
This led to passage of the Banking Acts of and The Banking act of commonly knows as the Glass-Steagall Act separated commercial and investment banking, gave increased regulatory authority to the Federal Reserve, prohibited payment of interest on demand deposits, and raised the minimum capital of national banks.
But most important, the legislation established the Federal Deposit Insurance Corporation. The Banking Act of was primarily intended to strengthen the Federal Reserve and its monetary management power.
The act gave the Federal Reserve expanded reserve requirement authority and the power to regulate the rate of interest paid by member banks on time deposits Regulation Q.
The legislation also strengthened the Federal Reserves independence by removing the Comptroller of the Currency and the Secretary of the Treasury from the Board.
The act also marked the end of easy entry into banking 2. What were its principal provisions? Why was it enacted?– FSLIC Recapitalization Funded new capital for the Federal Savings and Loan Insurance Corporation’s deposit insurance fund. In order to pay for rising costs of losses of closing thrifts, bill set up FICO to issue bonds to supplement insurance premiums, asset sales, and asset income.
that FSLIC (the Federal Savings and Loan Insurance Corporation) adopted forbearance a s a strategy of regulatory gambling that sought to buy time to expand opportunities for growth and good luck.
Unless the market turn continues to gain momentum, officials said, the Federal Deposit Insurance Corp. and the Federal Savings and Loan Insurance Corp. could be hurt by less private money being.
The sector had its own regulator, the Federal Savings & Home Loan Banking Board, and its own insurance fund to protect depositors, the Federal Savings and Loan Insurance Corporation (FSLIC), which was funded by the S&L industry and backed by the US taxpayer. Perfect numbers Mathematicians have been fascinated for millenniums by the properties and patterns of numbers.
They have noticed that some numbers are equal to the sum of all of their factors (not including the number itself). Such numbers are called perfect numbers. A perfect number is a whole number, an integer greater than zero and is the sum of its proper positive devisors, that is, the.
A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings, deposits, and making mortgage and other loans.
The terms "S&L" or "thrift" are mainly used in the United States; similar institutions in the United Kingdom, Ireland and some Commonwealth countries include building societies and trustee savings banks.