Regulation of Banking and Financial Services Essay
1210 Words5 Pages
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)
Essay on Banking
2495 Words10 Pages
A bank refers to a financial institution that accepts deposits and channels the money into lending activities (Lewis, 2009). Ethics refers to the principles of right and wrong that are accepted by an individual or a social group ((Lewis, 2009).) Conceptually, ethics refers to well base standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues (Safakli, 2005). It’s the integrity measure, which evaluates the values, norms and rules that constitute the base for individual and social relationships, from a moral perspective (Smith and Smith, 2002). It consists of choosing the good over the bad, the right over the wrong and the…show more content…
The banking sector in the modern society, in many areas, play many roles which includes unifying and intermediary roles between the fund supplying and fund demanding sides of the society, helping accomplish investment and saving functions. Banking institutions are expected to protect the rights and interests of depositors, establish stable and trustworthy financial markets, engage in economic development and more importantly to ethically conduct their operations in compliance with the principles of integrity, transparency , reliability, impartially, with social responsibility and control money laundering (Carse, 1999). However, not all banking institutions practice these norms, with their dishonor leading to adverse effects, for instance; corruption which includes the banking sector unethical conduct, can cost the poor three times more than the rich, according to a 2002 Word Development Report.
Financial institutions -including banks of all sorts, credit agencies, private equity firms, pension funds, insurance companies, and the like- have long been considered by most people to have no other object in view than the creation of wealth. The performance of financial institutions is therefore measured solely on the basis of their capacity to maximize financial assets, that is, it has been measured with evaluation factors that review only their monetary bottom-line results.