Banking And Market Regulation History Of Banking And Money ✓ Solved

Banking Andmarket Regulationhistory Of Banking Need For Money Wh

Banking and Market Regulation History of Banking, Need for “money” Where to store the money, Banks and religion, Italian banks (banco = bench), London goldsmiths, Investment/commercial banks.

Types of Institutions include Depository institutions, Commercial banks, Thrift institutions, Credit unions, Non-depository institutions, Finance companies, Property and casualty insurance, Life insurance, Mutual funds, and Pension funds.

The History of the Financial System in the United States starts with the Bank of North America (1781), and the First Bank of U.S. (1791–1811), followed by the Second Bank of U.S. (1816–1836). The “Free Banking” Era took place from 1837–1863, leading to the Dual Banking System in the 1860s, and the National Bank Act in 1863, regulating national banks federally while state banks are regulated according to state laws.

The Federal Reserve System was initiated by the National Bank Act (1863–1864), creating federally chartered banks and establishing the Comptroller of the Currency. The Federal Reserve Act (1913) established the Federal Reserve System, and the McFadden Act (1927) granted states authority to limit bank branching and allowed national banks to follow the branching laws of states.

Supervision and Separation Between Investment Banking (I-Banking) and Commercial Banking (C-Banking) included the Federal Home Loan Bank Act (1932), which created the Federal Home Loan Bank (FHLB) system to supervise/regulate savings and loan associations (S&Ls). The Banking Act of 1933, known as the Glass-Steagall Act, created the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits and prohibited banks from underwriting corporate securities.

The Pillars of Securities Regulation are established by the Securities Act (1933) and Securities Exchange Act (1934), creating the Securities and Exchange Commission (SEC) to regulate the issuance/sale of securities to the public. The FSLIC Act (1934) was part of the FHLB system and established the FSLIC to insure deposits of savings associations, with FDIC established in 1989.

Money Market Funds first emerged in 1972, allowing depository institutions to circumvent federal ceilings on interest paid and permitting small investors to receive current market rates.

Deregulation in the 1980s occurred with the Depository Institutions Deregulation and Monetary Control Act (1980), granting thrift institutions broader deposit and credit powers, phasing out federal deposit ceilings, and imposing uniform deposit reserve requirements. The Garn-St. Germain Depository Institutions Act (1982) authorized S&Ls and banks to offer money market deposit accounts, increased S&L lending powers, permitted adjustable rate mortgages, and provided for mergers or government loans to troubled institutions.

The Savings and Loan Crisis spanned the 1980s and 1990s, leading to the failure of 1,043 of the 3,234 savings and loan associations in the United States from 1986 to 1995. The Federal Savings and Loan Insurance Corporation (FSLIC) closed or resolved 296 institutions from 1986 to 1989, followed by the Resolution Trust Corporation (RTC) resolving 747 institutions from 1989 to 1995.

Regulatory Reaction to the Crisis included the Competitive Equality Banking Act (1987), which placed a moratorium on banks offering new services such as insurance and securities underwriting; allowed interstate emergency acquisition of banks and bank holding companies (BHC); and permitted FSLIC/FDIC to operate failed banks until a buyer was found. The Financial Institutions Reform, Recovery and Enforcement Act (1989) restructured federal agencies responsible for S&Ls with deposit insurance under FDIC and allowed BHCs to acquire solvent and insolvent S&Ls.

The 1990s saw continued deregulation with the Banking Act of 1994, permitting interstate banking through mergers, and the Gramm-Leach-Bliley Act of 1999, which repealed the last portions of the Glass-Steagall Act and allowed the affiliation of banks and insurance underwriters. A new financial holding company was created to underwrite/sell insurance/securities, invest/develop real estate, among other activities.

Furthermore, the Commodity Futures Modernization Act of 2000 attempted to define what a “commodity” is in relation to trading and futures, removing over-the-counter (OTC) derivative transactions from being regulated by the Commodity Futures Trading Commission and SEC: credit default swaps.

Banking in the European Union has witnessed full harmonization of the banking system, while still retaining some level of national authority. Banks can operate in any country either as I-Banking or C-Banking, embodying “universal banking” with “reciprocal treatment” or “national treatment”, and calls for a single financial regulator in Europe indicate the need for consolidated oversight.

Capital ratios reveal the prudent relationship between capital and lending, establishing the current relationship between capital and assets via “risk-weighted assets.” Capital must maintain a percentage of these risk-weighted assets with the Basel Committee setting the international standards.

Paper For Above Instructions

The evolution of banking and market regulation is a crucial part of financial history, tracing back to the emergence of money and the establishment of financial institutions. Understanding the need for money, its storage, and the institutions that emerged to facilitate transactions provides insights into banking development and market regulation throughout history.

The concept of “money” arose from the need for a medium of exchange, which led to the establishment of banks. In ancient societies, religious institutions often served as early banks, where money was stored, and transactions were recorded. The term “banco,” which means bench in Italian, reflects the historical practice of conducting banking activities at benches or tables in marketplaces.

As banking evolved, certain types of institutions emerged, including depository institutions like commercial banks, thrift institutions, and credit unions. Non-depository institutions, such as finance companies, insurance entities, mutual funds, and pension funds, developed alongside these banks, creating a complex financial landscape.

The U.S. financial system's history is marked by significant milestones, starting with the Bank of North America in 1781 and followed by pivotal institutions like the First Bank of the United States and the Second Bank of the United States. The Free Banking Era, characterized by decentralized banking practices, paved the way for the more structured Dual Banking System, established by the National Bank Act that regulated both national and state banks.

The Federal Reserve System's establishment in 1913 marked a substantial turning point in U.S. banking history, providing a central framework for monetary policy and bank regulation. The McFadden Act granted states control over bank branching, reflecting the ongoing tension between state and federal regulation.

Investment banks and commercial banks require clear supervisory separation to safeguard against conflicts of interest. The creation of the Federal Home Loan Bank and the FDIC were critical regulatory responses to maintain stability in the banking system and protect depositors.

In terms of securities regulation, the Securities Act of 1933 and the Securities Exchange Act of 1934 fostered the establishment of the SEC, which regulates public securities transactions. This regulatory foundation is essential for maintaining investor confidence, especially in post-crisis periods.

The emergence of money market funds in the 1970s revolutionized investment possibilities for small investors while circumventing traditional banking regulations. The deregulation movements throughout the 1980s, including policies such as the Depository Institutions Deregulation and Monetary Control Act, expanded the powers of thrift institutions and aligned deposit and reserve requirements across banking sectors.

The Savings and Loan Crisis exemplifies the consequences of deregulation without adequate oversight, leading to widespread failures among S&Ls and considerable financial loss. Regulatory responses, including the Competitive Equality Banking Act and the Financial Institutions Reform, Recovery, and Enforcement Act, sought to restructure and stabilize the banking system amid continuing challenges.

In the following decades, a trend toward deregulation persisted, typified by legislation such as the Gramm-Leach-Bliley Act, which dissolved barriers between commercial banking and other financial services. This shift toward a unified financial industry underscores the significance of balancing regulation with the need for innovation and growth.

On a broader scale, the evolution of banking in the European Union reflects efforts toward harmonization and regulatory coherence. Although national authorities still play crucial roles, a unified banking system exists to enhance financial stability across member states.

Capital ratios are increasingly vital in assessing banks' risk profiles, reinforcing the importance of prudent management of capital in line with risk-weighted assets. The Basel Committee's standards are essential for fostering international coordination and stability in bank operations.

In conclusion, the history of banking and market regulation demonstrates the delicate interplay between financial innovation and regulatory frameworks. As the landscape continues to evolve with new financial technologies and persistent regulatory challenges, ensuring effective governance will remain paramount for the stability of the banking sector and global economy.

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