Commercial Banking - Concept Checks

Why were the Sarbanes-Oxley, bank secrecy and USA patriot Acts enacted in the US?

1. Disclosure of manipulation of corporate financial reports 2. transactions of $10,000 or more to be reported to the government to prevent money laundering 3. designed to find and prosecute terrorists.

Who are a banks biggest competitors? What services of theirs compete directly with banks?

All financial institutions & all of their services that a particular bank may offer.

What did the Gramm-Leach-Bliley act do?

Allows companies to diversify their service and offerings to reduce overall risk. Offers customers the convince of on stop shopping.

How did the Federal Reserve change the policy and practice of the discount window recently?

By creating primary and secondary credit replacing existing adjustment and extended credit Primary is for sound borrowing institutions Secondary is for ones that don't qualify for primary and is at a slightly higher rate

Primary role of Comptroller of the currency?

Charters and supervises the activities of national banks through its policy setting and exams.

Principal job preformed by the FDIC?

Insures deposits of bank customers up to $100,000 per account owner. Primary regulator of state chartered non member banks.

How does the fed affect the banking and financial system through open market operations?

It consists of buying and selling of securities by the central bank in effort to influence and shape the course of interest rates and growth of money and credit. Affects the volume of growth and the volume of lending.

What are the reason for regulating each of these key areas or functions?

Protect depositors funds, minimize risk of bank failure, maintaining competition and ensuring that the public has reasonable and fair access to banking services.

What is the discount window?

The department in each federal reserve bank that receives requests to borrow reserves from banks and other depository institutions to obtain credit from the Fed for a short period of time.

What key areas or functions of a bank or other financial firm are regulated today?

adequacy of capital & quality of loans and security investments, liquidity position, fund raising options, services offered, and ability to expand through branching and holding companies.

What is a primary dealer and why are they important?

A dealer in US T-Bills an other securities that tweet the Fed reserve system requirements for trading directly with the Fed's trading desk.

What is a bank? How does it differ from other financial service providers?

Banks are financial institution offering the widest range of services. Other providers offer some of what a bank does, but not all within the same institution.

What different kinds of services do banks offer the public today? what do closest competitors offer?

Banks offer widest range of services. All competitors may offer some or all of their services. Banks & Competitors are becoming financial department stores.

Why are some banks trying to be one stop financial service conglomerates?

Because there is increased competition in the industry and erosion in banks typical services & the financial services modernization act allows banks to expand their role to be full service providers.

How has the financial service market changed in the recent years? What powerful forces are shaping financial institutions today? Which will continue?

Deregulation has increased the volatility of the banking market. The variety of services offered as increased due to intensifying competition and foreign banks have become successful in efforts to enter countries overseas and attracted overseas business.

Why'd the federal insurance system run in to problems in the 80's and 90's? Can the current system be improved?

FDIC insures deposits up to 1M wasn't designed to deal with system wide failures, yet 80's had most bank closings since the depression. FDIC almost went bankrupt. Moved to a risk based insurance schedule and greater insistence on maintaining long term bank capital.

Glass-Steagall act, and its importance in history?

FDIC to insure smaler size banks, impose interest rate ceilings on deposits, broadened the branching powers of national banks, separated commercial and investment banking.

What is a financial department store? A Universal bank? Why are they important?

Financial department store and a universal bank are the same concept. These have become important because of convergence and changes in regulations that have allowed financial service providers to offer all services under one roof.

What is happening to banks share of financial marketplace? What kind of banking and financial system do you foresee for the future if present trends continue?

Financial services modernization act allowed financial institutions to offer many services therefore taking marketshare from "traditional banks" Banks and their competitors are converging into one stop shops and the trend will continue.

Why do banks and other financial intermediaries exist in modern society, according to the theory of finance?

Fulfilling needs of savers and borrowers, providing a supply of credit and a supply of liquid assets. Also a critical part of the payment system for G/S and an increasingly important role as a guarantor and risk management role for customers.

How does the FDIC deal with most failures?

Get another bank to take over the deposits an clean assets of failed bank. If too bad or small- deposits are paid off. Open bank assistance and a change in mgmt for large banks. Largest banks taken over by FDIC until its disposed of.

How have bank failures influenced recent regulation?

Huge losses to the federal insurance reserves, recent legislations tried to deal with failures such as bridge bank device. Also drew attention to flat premiums and changed to risk based premiums.

In what ways is the regulation of nonbank financial institutions different from the regulation of banks in the US?

Most nonbank financial institutions are vested in public interest and have close supervision from fed and states such as banks.

How did equal opportunity credit act and the community reinvestment act address discrimination?

People can't be denied a loan based on their demographic or based on the neighborhood they live in.

What is monetary policy?

Regulation and control over the growth of money and credit in attempt to reach economic goals.

Key role of Federal Reserve system?

Supervises and examinates the activities of state chartered banks that choose to become members of its system. Primary responsibility is monetary policy.

What changes have occurred in the U bank's authority to cross state lines?

The Riegle Neal Interstate Banking Act. Can acquire any bank in the US not just state. No one can control > 10% national or 30% state deposits. Must loan to community. Foreign banks have branches in the US under the same rules as domestic banks.

What will financial service industry look like 20 years from now? What are the implications of these projections for its management today?

There is a trend toward consolidation and convergence. There will likely be fewer financial service providers and they will mostly be very large. Globalization will continue and it will be critical for survival of institutions. Managers must use technology and continue to offer new services.

What services does the Federal Reserve provide to depository institutions?

checking clearing, wiring of funds, shipment of currency and coin, loans from the reserve banks to qualified institutions and onion concerning trends.

Under US law what must a corporation do to qualify to be regulated as a commercial bank?

offer demand deposits and commercial loans & have deposit insurance administered by the FDIC.