Banking and Financial Institutions Law in a Nutshell
Author:
Malloy, Michael P.
Edition:
10th
Copyright Date:
2024
17 chapters
have results for banking
Chapter II. Money and Banking 73 results (showing 5 best matches)
- The next major financial development was enactment of the banking legislation in March 1863. With 11 agrarian states out of the Congress, it was possible to take a substantial step toward federal coordination and strengthening of the banking system. Under this legislation banks were “encouraged” to recharter themselves as national banks, with the Comptroller of the Currency as the new agency for screening and supervision. Modest capitalization requirements were involved, although somewhat stronger reserves against deposits were mandated: (i) 25 percent for “reserve city” banks; (ii) 15 percent for “country” banks. However, reserve banks outside New York City could keep half their reserves in interest-bearing accounts in N.Y.C. banks; meanwhile, country banks could keep three-fifths of their reserves in interest bearing accounts in any reserve bank. Initially a small tax (½ percent annually) was placed on average banknote circulation for all banks. But when relatively few state banks...
- The Federal Reserve Banks would carry on lending operations to member banks, rediscounting 90-day commercial paper or six-month agricultural obligations. The discount rates for such lending would be a discipline on member banks. In addition, reserve requirements were specified for demand deposits in all the member banks: 18 percent for reserve city banks, 15 percent for city banks, and 12 percent for country banks. On time deposits all banks had to maintain 5 percent reserves. Along with this statutory power, the Federal Reserve Board received financial supervision authority, and the right to enforce special reports from all member and reserve banks, to suspend and remove officers, and to suspend District banks. The Board could also allow District banks to make loans to each other. Thus, financial integrity and emergency lending support would be assured to all member banks, in all Districts of the country.
- But gradually the tendencies toward decentralized, state charter banking resumed their influence. As shown in Chapter I, state banks grew in number from 475 in 1878, to 8,696 in 1900 and 17,440 in 1929. Meanwhile, national banks increased their numbers more slowly, from 2,056 in 1878, to 3,731 in 1900 and 7,530 in 1929. The share of deposits in state banks grew from 7 percent in 1868 to 18 percent in 1878, 43 percent in 1900, and reached 56 percent in 1929. Key factors were rapid development of checking accounts as a substitute for banknotes, which allowed state banks to compete effectively, together with more relaxed, liberal reserve requirements and easier chartering and entry for state banks. Eventually, national bank charter and reserve requirements were liberalized, too, so that national banks could compete more equally, and their numbers expanded very substantially. A final factor was the prohibition on branching for national banks in the National Bank Act of 1864 (NBA)....
- But more action quickly followed to ensure public confidence in money and banking. Most significant, for the long term, was the Banking Act of June 16, 1933. This law established the Federal Deposit Insurance Corporation. The FDIC expanded the old New York safety fund concept (1829–1837) and created a federal insurance guarantee system for bank deposits up to $2,500 (now a “standard maximum deposit insurance amount” of $250,000, periodically adjusted for inflation) on each account. Its initial capital was provided by the Treasury and the surplus in Federal Reserve District Banks, and was replenished by modest insurance premiums on the insured banks. Virtually all banks joined the new system (whether national or state-chartered), because most depositors wanted this protection for their bank deposits. Every normal commercial bank now maintains this insurance to stay in business. This provided much greater supervisory leverage for bank examination purposes. The FDIC staff, along with...
- While opposition from state bank and agrarian interests prevented charter renewal for the first Bank of the United States in 1811, the War of 1812 promptly proved the need for a more reliable note issue and a strong method of federal government borrowing. Many state banks had become increasingly lax, and it was widely felt that specie redeemability should be enforced more systematically for bank notes. Accordingly, Congress created the second Bank of the United States in 1816. The new “national” bank was larger, with $35 million share capital (one-fifth from the federal government) and stronger powers. Congress also required all payments to the government to be made in specie, Treasury notes, or notes of the Bank of the United States. At first, Bank leadership was lenient, allowed extensive loans, and accepted too many state bank ..., which encouraged a land speculation boom and a subsequent recession in 1819. Meanwhile, the Supreme Court sustained the constitutionality of the Bank...
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Chapter III. Banking Market Regulation 185 results (showing 5 best matches)
- Bank merger regulation has gone through three different stages: (1) bank mergers were restricted to limit consolidation and preserve the traditional, largely decentralized U.S. banking market structure. Competition among depository institutions was maintained, and even enhanced by growth of savings banks, S & LS, and credit unions. (2) these limitations on bank growth and mergers were relaxed in a gradual, incremental pattern. But no drastic increases in concentration or reduced competition occurred, even though the numbers of U.S. banks slowly declined over these 20 years from 14,600 to 10,500, savings banks and S & Ls from 5,400 to 2,200, and credit unions from 21,000 to 12,500. (3) there has been more drastic relaxation of bank merger and BHC restrictions, which allowed much larger consolidation mergers, big chains of megabanks, and substantially weaker competition in many regional and local banking markets. By 2008 the number of U.S. banks fell further to 7,300 with only 1,...
- Three federal banking agencies, the Office of the Comptroller of Currency (“OCC”), the Federal Reserve Board, and the Federal Deposit Insurance Corporation (“FDIC”), along with the state banking departments or commissioners, are the major regulatory agencies for bank market regulation. At the federal level, the OCC is the oldest agency, having served since 1863 as the chartering authority for national banks, and their primary agency for the supervision and examination process. The Federal Reserve Board, created in 1913, has supervision and examination authority for state chartered banks that are members of the Federal Reserve System. It has become increasingly important not just as a central bank but as a bank regulatory agency under many recent enactments (covering mergers, bank holding companies, truth-in-lending, fair credit reporting, and certain aspects of interstate and multinational banking.) ...became a secondary supervising agency for national banks, and the primary federal...
- These policies have been successful in reducing the number of runs on banks and failures. In the 1920s an average of 600 banks suspended operations each year. Between 1930 and 1933, another 10,000 banks were closed. But after emergency measures in the Spring 1933, including the new FDIC and emergency bank lending on a large scale, the rate of bank closings was lowered dramatically. Some 470 banks closed between 1934 and 1940, which still reflected residual weakness from the depression crisis. (Of these 470 bank failures, 112 were uninsured.) In the next forty years, 1941–1980, only 242 banks failed (only 24 uninsured). From the 1920s to the years 1941–1980, the incidence of bank failures was cut roughly one hundred-fold, a truly impressive achievement.
- The tradition of bank examination and supervision in the United States goes back to the 19th Century. More successful bank supervision and examination efforts followed in the wake of New Deal reforms and the creation of the FDIC in 1933. Comprehensive reporting responsibilities have been established, including regular “call reports” or reports of financial condition and income (on a quarterly basis, although some schedules of information are filed annually for smaller banks and savings associations, and quarterly for very large banks and savings associations), and regular examinations (annually for most banks and savings associations, and every 18 months for relatively small, well-capitalized and well-managed banks and savings associations). Special reports and examinations are imposed by the banking authorities for “problem banks,” and almost continuous monitoring for banks facing imminent or likely failure. Because of this supervision regime, made increasingly easy, in some...
- Banking laws in the United States set constraints on the growth of banks and bank holding companies. The legislation reflects a strong tradition of federalism and decentralized banking. The major policies involve chartering and branching limits, bank holding company restrictions, and merger regulation. As a result, the U.S. banking system still has more banks, about 4,200, than most other countries relative to population. This fosters competition and broadened economic opportunity in American society.
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Chapter IV. International Banking 54 results (showing 5 best matches)
- Foreign banks have a range of options in the United States that is broader, in some respects, than alternatives U.S. banks enjoy to carry on activities abroad. Representative offices and agencies are the more limited connections that are most widely employed. Investment companies are authorized for foreign banks in some states. Since 1978, Edge Act corporations have been allowed for foreign banks as well as for domestic banks. In addition, many foreign bank branches, subsidiaries, and even foreign-owned U.S. banks have been established, some of which have domestic deposit collection and lending authority comparable to U.S. banks in many states. Until the International Banking Act of 1978, foreign banks also enjoyed a special freedom from restrictions on interstate branching that applied to national banks and BHCs. The proliferation of foreign bank activities finally provoked Congress into eliminating most of these special interstate branching opportunities in the International
- U.S. banking law put modest constraints upon this multinational banking development. (See Regulation K of the Federal Reserve Board, 12 C.F.R. pt. 211.) The Federal Reserve Act, 12 U.S.C. § 601, allows national banks with $1 million capital and surplus to establish branches abroad, under regulations established by the Board. State chartered member banks must obtain Board approval, and, if there are any restrictions in state law, approval at that level, too. (State non-member bank branching abroad is supervised by the FDIC, and, to a modest degree, under state law, but only a small amount of international banking occurs in these banks.) Subsidiaries of U.S. banks abroad can be established under the same patterns of supervision as branches. Although some accountability has been imposed on U.S. international branches and subsidiaries, it is fair to say that properly managed, sound U.S. banks of sufficient size find no difficulty in setting up activities abroad. Under these arrangements...
- This legal regime allows foreign banks liberal access to many U.S. banking markets. A variety of motivations has prompted considerable investments, subsidiary banks, Edge or Agreement corporations, branches or agencies in the United States by foreign banking interests. Many want stronger multinational banking networks, access to U.S. clientele, and more opportunities for international investment. Access to U.S. EFT technology, banking management and practices has also been useful. When the dollar weakened relative to other currencies, the opportunity for investment and branching activity, broadly speaking, became something of a bargain. Finally, investments in U.S. banking have been a route toward greater safety in an insecure world, when risks in many countries are often alarming. For these various reasons, foreign banks have found it attractive to take part in the U.S. banking market. The major U.S. multinational banks have not opposed this evolution, because it tends to cement...
- Reserves and net capital held by many international banking operations, even by U.S. multinationals, had become leaner than most domestic U.S. banks by the early 1980s. Competition in international activities is keen, and legal reserve and capital requirements were often less demanding. In international banking, customer confidence for deposits or lending comes from the size, reserves, capital, and reputation of their parent banks at home, and the evident determination of governments to support their financial integrity. Thus, domestic banking regulations and resources actually support international banking, its deposits, lending, and profitability. Most national governments found it necessary to back up their major international banks, or so people generally believe. Where banking systems were substantially nationalized, as in France (during the Mitterrand government) and many other countries, or where central banks or governments subsidize credit (especially for exports), margins...
- Private international banking―sometimes referred to as “multinational” or “transnational” banking―has become more important for larger U.S. banks over the last generation, and the largest international banks have spread globally in their network of deposit, loan, financing, securities transactions, and currency exchange activities. Greater affluence, thriving trade and commerce, foreign investment, and increasing use of multinational channels for tax avoidance, enhanced profits, and in some situations, flight of capital to escape regulation or even possible confiscation, have helped to create a multinational banking system comparable in size to the entire U.S. domestic banking industry. U.S. banks still play an important role in this multinational scene, but by 1995 only about 10 of the 75 largest international banks were based in the United States. commerce, and greater concentration in many banking systems. Most major multinational banks have extended branch connections throughout...
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Chapter I. Evolution of Banking and Financial Institutions Law 58 results (showing 5 best matches)
- In most countries, corporate banks were chartered to supplement national banks and private family (or partnership) banks. Gradually, corporate banks outgrew private banks, and took over the leading role in bank finance. This allowed more banking activity and competition, which flourished when checking accounts and bank drafts became almost as reliable as currency. Wealthier individuals would provide the initial corporate bank capital, and additional shares might be sold to the general public. Some risk of insolvency existed, though, for corporate banks that lacked the support and guarantee of deposits that governments could provide. Although a large, successful bank corporation might offer more strength and reliability than the typical private family bank, the danger of mismanagement, a weak loan and investment portfolio, or the adverse financial impact of wars, depressions or financial panics meant that runs and failures might still occur. These risks increased with easy entry of...
- The Federal Reserve System, established in 1913, evolved out of a search for consensus among bankers, politicians, and some academic experts. It was a move toward “central bank” regulation in the European sense, though weaknesses were not evident until the Great Depression. The major features were: (i) An association of District Federal Reserve banks was established, regulated by a Board of Governors, appointed by the President. (ii) Every national bank was required to be a member, and state banks were allowed to become members. (iii) Member banks had to purchase district reserve bank stock equal to 6 percent of their capital and surplus. (iv) Member banks had to maintain reserves against their demand and time deposits (from 12–18 percent and 4 percent, respectively). (v) Member banks could get loans from their district reserve bank by (vi) District reserve banks would issue Federal Reserve notes (“currency”) fully secured by commercial paper and gold reserves. (vii) District reserve
- Another significant development in postwar banking law was the increased importance of antitrust policy, and concern for adequate competition in financial markets. Because new entry into banking slowed greatly since the 1930s, while bank mergers, holding companies, consolidations, and branching became more widespread, Congress and the antitrust authorities imposed constraints. The Bank Holding Company Act of 1956 limited “chain banking,” in which a bank holding company would expand its market by acquiring a string of bank subsidiaries. The Bank Merger Acts of 1960 and 1966 (along with the Supreme Court’s decision in
- During the Civil War, with eleven Southern and agrarian states out of the Congress, it was possible to enact stronger federal banking legislation. The creation of the position of Comptroller of the Currency in 1863, with further amendments in the National Bank Act of 1864 (NBA,} encouraged federal chartering of privately owned banks with modest capitalization requirements, but imposed stronger reserve requirements and limitations on the note issue of federally chartered banks. These were officially called “national banking associations,” or more commonly “national banks,” but they are commercial enterprises, not quasi-central banks like the first and second Banks of the United States or “national banks” in other countries.
- Private banking enlarged the financial potential of city states, republics, kingdoms, and empires through much of history. Financial activity might flourish with military success or expanding trade and prosperity. But risks were inherent in private family (or partnership) banking. Depositors received no more assurance than the private fortunes and reputation of their bankers could guarantee, and banker’s notes in circulation might fluctuate in value and suffer significant discounting. To achieve stronger, more reliable banking activity, many countries in the Mercantilist era (roughly from the 16th to the 18th Centuries) created national banks, such as the Bank of Amsterdam, Banque Royal, Bank of England, Bank of Sweden, Banque de France, Bank of Prussia (later the Reichsbank), along with the first and second Bank of the United States. (The second Bank was, of course, the subject of the seminal Supreme Court decision ...federal government to create a central bank.) These... ...banks,”...
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Chapter V. Thrift Institutions 61 results (showing 5 best matches)
- Mutual savings banks spread throughout the industrial Northeast fairly rapidly in the 1820s–1830s. The Panic and Depression of 1837 depleted their ranks, but MSBs became more numerous and prospered during the 1840s–1850s. By 1860 deposits in about 200 MSBs were $150 million, whereas assets in the 1600 commercial banks totaled $1 billion. But savings banks operations were concentrated in the more industrial states, especially Massachusetts and New York. In the agrarian Midwest and South, banking remained overwhelmingly commercial and farming oriented, and MSBs were relatively rare. In many areas state commercial banks were also smaller, less pretentious, and served some of the functions of savings banks. Savings and loan associations (or building societies) largely took over the remaining role for mutual savings banks in the rest of the country.
- The Great Depression provoked a large part of modern thrift legislation in the United States, and much of the federal regulatory structure that supervises and insures most thrift institutions. Savings banks (mostly MSBs) had been authorized by 17 states, and since 1982 they could also obtain federal charters. Their deposit insurance came from the FDIC, FSLIC, or state insurance programs ( , Massachusetts). In 1982 almost all 448 savings banks were state-chartered and supervised by their respective states, plus the FDIC or Federal Home Loan Bank Board. Thereafter, many stock savings banks were chartered by the Federal Home Loan Bank Board, its successor agency (the OTS), and some states. By 2017 there were 483 FDIC-insured savings banks.
- More recently, however, much of the thrift industry recovered their financial health. Generally, the “problem” institutions had either failed or recovered by the mid-1990s. But the consolidation movement that hit the U.S. banking industry since the mid-1980s continued throughout the full range of depository institutions. Commercial banks declined in numbers from 14,285 to 7,338 between 1985–2008, while bank assets grew from $2,350 billion to $11,806 billion in these 24 years. Savings banks and S & Ls declined from 3,905 to 1,265 between 1985–2008, but thrift assets (S & Ls, savings banks, and credit Substantial numbers of thrift institutions, and their assets, had been acquired by commercial banks in these years. Also significant was a disparity in FDIC insurance premium assessments for BIF institutions—as compared to SAIF-insured S & Ls and savings banks—prior to the merger of the BIF and SAIF into the consolidated DIF, pursuant to the Federal Deposit Insurance Reform Act....
- BIF insurance premiums were raised substantially between 1989–1994 because of widespread commercial loan problems among larger banks, and BIF insurance reserves needed replenishment. But by 1995–1996, bank capital had been largely rebuilt for BIF insured institutions, and accordingly, BIF premium charges were lowered to minimal levels for soundly-rated commercial banks. For years, SAIF premiums were more expensive. This differential was a cost disadvantage for SAIF insured savings banks and S & Ls.
- Mutual Savings Banks (and Savings Banks)
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Chapter VI. Securities Market Regulation 35 results (showing 5 best matches)
- Underwriters support the initial distribution of new securities. They provide risk capital or “investment banking” resources for this purpose. Underwriting involves a wide mixture of risk possibilities that may go considerably beyond normal commercial banking for collateralized loan accounts. And yet, some international bank lending, especially to problem countries with default vulnerability, really involves the equivalent of investment banking risk exposure. For these reasons, a considerable part of international bank lending has been allocated among syndications much like domestic underwriters put together for securities issues.
- As to the power that they do have under section 12(i) of the 1934 Act, the statute divides up the authority of the bank regulators along very specific lines. First, the authorities are exercised by the Comptroller with respect to FDIC-insured national banks and federal savings associations. Second, the authorities are exercised by the Federal Reserve with respect to all other member banks of the Federal Reserve System. Third, the authorities are exercised by the FDIC with respect to all other FDIC-insured banks and state savings associations. The three agencies have the power to issue rules and regulations to implement the statutory provisions, but section 12(i) concludes by requiring the three bank regulators to “issue substantially similar regulations to regulations and rules issued by the Commission.”
- The major underwriters in the domestic U.S. securities market comprise leading broker-dealer organizations like Merrill-Lynch, which have excellent opportunities to float large blocks of securities to the public, along with a few important investment bankers that concentrate more directly on institutions. Regional underwriters and broker-dealers may participate actively in selected issues, especially in their marketing areas. Large domestic commercial banks recently participated in this underwriting process, although restricted by Glass-Steagall Act limitations on securities distribution. However, in 1987–1990 the bank regulatory agencies allowed some of the largest U.S. banks to underwrite commercial paper, securitized instruments, and even domestic bonds and stocks, provided that such underwriting was handled in separate affiliates, and , discussing securities marketing and commercial banking.) In international banking, however, there were no Glass-Steagall restrictions, and there...
- Apart from the securities disclosure, registration, and anti-manipulation disciplines described previously for underwriters, dealers and brokers, there is little specific regulation of investment banking under U.S. law. FINRA supervision applies, but this adds little further regulation to underwriting or investment banking. Thus, there are no comparable entry or chartering requirements, only modest capital or solvency regulation, and no merger, holding company, or branching restrictions for domestic investment banks, in contrast to the extensive supervision of virtually every aspect of the corporate and transactional life of a commercial bank that was discussed in Chapters II and III. One basic reason for this difference in treatment is that investment banking outlays are viewed as a specialized type of risk-taking entrepreneurship. Although often highly profitable, the underwriting of securities is not considered generally a normal, prudent investment for public deposits of...
- The primary thrust of investment banking regulation has been to enforce the disclosure- antifraud disciplines of the securities laws, and to protect potential purchasers of the securities against incomplete disclosures or misrepresented investment opportunities. In commercial banking, borrowing liquidity on a loan basis is a more neutral, objective process, but the nature of investment banking is more entrepreneurial. Thus, underwriting and marketing securities constitute a substantially different business from commercial banking, which was separated by custom and under U.S. law by the Glass-Steagall Act.
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Chapter IX. Controversies and Prospects 42 results (showing 5 best matches)
- Among the possible restructuring options were consolidation of most federal bank regulation activities (other than Federal Reserve monetary policy) into a new agency. This could be called the Federal Banking Commission (FBC) or a broadened OCC-FDIC. Crucial questions would be its leadership, responsiveness to different elements of the banking industry (multinational banks, regional banks, and independent banks), thrift institutions, and broader public interests. Some proposed reducing (or “weakening”) the Bank Holding Company Act’s regulation along with such a change, although this is controversial. Few seemed to favor including the NCUA in such a consolidation, at least initially.
- In this context, it should be emphasized that U.S. banking and financial market regulators and industry experts are becoming more aware, interested, and knowledgeable about banking and financial market regulation in other advanced industrial countries, especially Europe and Japan. In these other countries, banking, securities, and insurance regulation has some similar characteristics. Each nation has a Central Bank and Finance (Treasury) Ministry for monetary and fiscal policy. Banking market supervision and detailed regulation is either the central bank’s responsibility, or delegated to a banking commission or similar agency. Insurance might be regulated by the Finance Ministry or an independent agency, while securities are regulated by the Finance Ministry or independently. Merger activity is closely supervised, along with significant international bank branching in their territories. Exchange and credit control authority is commonly established, though not used often by moderate...
- Banking and financial institutions law is an evolution of compromises. The development of money and banking law, banking market regulation, international banking, thrift institutions, securities markets, insurance companies, pensions and Social Security funding was set forth in previous chapters. But a number of important issues continue to be controversial, and are being dealt with by the Executive Branch, Congress, and the regulatory agencies. While outcomes cannot be predicted with certainty, the issues and arguments can be summarized. This provides considerable insight into the challenges for banking and financial market regulation in the coming years.
- One of the toughest challenges for financial market regulators is the trend towards wider financial conglomerates (banking, securities, and insurance), ., the 1991 collapse of the Bank of Credit and Commerce International) that good accountability, comprehensive reporting, reasonable transparency, and sufficient capital are essential for sound finance. Mergers across national boundaries make this supervision more difficult, and multinational financial conglomerates even more so. Thus, stronger collaboration regimes (including “source of strength” doctrines) must be established among financial regulators (banking, securities, and insurance), but also across international boundaries. Thus, the Basle Concordat regime sponsored by the BIS to establish basic principles for responding to liquidity and insolvency problems in global banking could be extended in some form into a multi-dimensional grid of supervision for international finance (banking, securities, and insurance). This is a...
- Until recently each major field in the spectrum of U.S. financial institutions—commercial banking, thrift associations (MSBs, S & Ls, and credit unions), securities marketing firms, and insurance companies—was almost entirely specialized to itself. There was little diversification or cross-ownership between these financial industries, and not much ownership of significant financial enterprise (in any of these channels) by outside industrial companies. Each financial sector was supervised mainly by its ...along with more general public and consumer interests. Within their respective channels, banks, thrifts, securities firms, and insurance companies performed their intermediation roles, served depositors and customers, and grew within the latitude allowed for their industry. (See Chart IX-1, infra, for traditional market participation among financial institutions.) Chartering policies, fiduciary responsibilities, business custom, and historical evolution strengthened this pattern. So...
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Chapter VII. Insurance Regulation 27 results (showing 5 best matches)
- Recent events have prompted increasing supervision of the insurance industry. Even before the market collapse of 2008, insurance companies were reorganizing and diversifying as financial holding companies (FHCs), by acquiring or establishing banking and financial services affiliates under the FHC structure, including State Farm Group (State Farm Bank), MetLife (MetLife Bank NA), American International Group (AIG Federal Savings Bank), and Allstate Corp. (Allstate Bank). Efficiencies have been achieved by maintaining banking affiliates as virtual banks accessed by customers through the Internet, ATMs, and mail. Significantly, these reorganizations open up the possibility of significant supervision of these conglomerates by the Federal Reserve as FHCs.
- However, most independent insurance agents fear that many ordinary auto, home, life, and health care policies could be sold in bank lobbies. Over time, traditional independent insurance agents could be marginalized and replaced by insurance policies sold in bank lobbies or on bank websites, or tied in with bank loans, title insurance, checking account, annuity sales, and mutual fund services offered by banks. For these reasons, independent insurance agents (hundreds of thousands of them) resisted any Glass-Steagall reforms that allow banks to enter freely and take over insurance marketing. From their viewpoint, such a banking takeover could mark the end for viable independent insurance agents. Life insurance sales slowed in recent years, and banks were less suited for sophisticated business and estate planning arrangements that need to be carefully tailored for client needs. For group life policies, margins are thinner, and group policies are often packaged with health insurance for...
- Recent OCC rulings attempted to widen bank powers and allow more insurance activities by banks. U.S. Supreme Court decisions like in 1995, where the court allowed banks to sell annuity insurance policies, and
- Why did some banks and BHCs want insurance underwriting or marketing authority and powers? Many banks feared consolidation, retrenchment, and digitalization pressure, and believed that financial service operations could be leaner with fewer employees. Accordingly, some banks favored expansion into insurance as an offset growth channel, even though this came at the expense of insurance agents (and, to some extent, insurance companies). In addition, some banks saw economies of integration for banking, asset management, and customer services (including insurance). While most smaller banks would get little growth from
- A bigger challenge to the state oriented insurance regulatory tradition is the new opportunity for banking-securities-insurance industry holding companies. When the Gramm-Leach-Bliley Act authorized financial holding companies to have subsidiaries in all three fields together, it contemplated regulation of each field in their present form. Banking is regulated mainly by the Federal Reserve, OCC, FDIC, and by state banking regulators; securities markets are regulated mainly by the SEC, NASD, stock and options-trading exchanges; insurance is regulated mainly by the state insurance departments and their commissioners, along with NAIC.
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- Major changes have occurred. Broader rivalry developed over the last generation among banks, thrift institutions, securities firms, mutual funds, insurance companies, pension funds, and various retirement and investment accounts. Considerable deregulation was achieved; yet the next steps remain controversial. Unfortunately, a costly wave of U.S. bank and thrift failures came in the late 1980s and early 1990s. This led to tougher laws in 1989 and 1991, and substantial bailout and restructuring efforts, especially for savings and loan associations and savings banks. But, as economic conditions stabilized and bank margins improved, capital was replenished for most U.S. institutions since the early 1990s. Renewed confidence with sound oversight seemed to be re-established, but fresh strains emerged in the new millennium, prompting new statutory and regulatory responses. These latest developments will be discussed in context throughout this book.
- Unfortunately, lax surveillance reappeared in U.S. mortgage finance, global securitization, and off-balance sheet activities. This brought an even bigger wave of bank losses in 2008–2009. Another round of bank failures in the U.S. and Europe combined with several trillion dollars of contaminated assets. Awkward uncertainties hit the largest U.S. and European banking and securities firms. Many of the biggest institutions needed multi-billion dollar bailouts, guarantees, and/or loan support. Over-leveraging, over-confidence, and gaps in supervision were to blame. Once again, regulatory agencies and financial markets were strained. But lessons from the Great Depression, the 1970s, 1980s, and the 1990s should be helpful as we emerge from the latest crisis.
- This book is intended for lawyers, law students, economists, bankers, and business people seeking to understand recent developments in banking and financial institutions law and policy.
- This book explains the economic, historical, and legal background for banking and financial intermediaries. Law and policy-makers have tried to compromise conflicting interests, with a view toward improved competition and overall performance. These efforts sometimes neglect the bigger picture.
- An extensive body of literature and law exists in each area summarized by this book. But hardly any legal writing properly integrates these developments for banking and financial intermediaries as a whole. This book meets that need and has been heavily revised in light of recent developments.
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- Three kinds of managers are used by private pension funds. (1) A large number of plans are “insured” and managed by insurance companies, with up to one-fourth of the private pension assets, including many smaller plans. State insurance regulation applies to this sector, with restrictions upon assets, bonds, mortgages, equities, and loans. (2) Banks manage a large portion of the majority of other private pension trust funds, and handle many of the bigger plans. The national and state banking
- Generally speaking, ERISA provides that pension fund managers, trustees, or officials with control over such funds must be bonded. Specific exemptions, however, apply to bonding for insurance company, bank, and trust company fiduciaries, but their executives are often bonded anyway, and these financial institutions would be liable themselves for any breach of fiduciary responsibilities.
- vesting of benefits was required before plans could be terminated. Apart from these tax qualification requirements, the only other significant law regulating pensions was the law of trusts in each state for funds taking the form of legal trusts, and state insurance law for insurance contract plans developed by insurance companies. Note that commercial banks and trust companies commonly serve as trustees for pension plan trust funds, and banking law indirectly affects their activity.
- financial intermediaries, and allow more competition for these funds. Banks, MSBs, savings associations, insurance companies, mutual funds, and money market funds compete for these funds, along with many established pension plans (through SRAs and related options), and securities brokerage firms offer “self-directed” Keogh investment accounts for stocks, bonds and other securities. More savings may result from Keogh, IRA, SRA and related accounts, although funds in this category may have less liquidity, and are often subject to financial institution management and service fees. The widening of access to these tax-sheltered savings and investments may be influential politically. This may prove to be a popular, broadly desired tax concession for many families. Conceivably, the taste for “individualized” pension plans could alter group pension and benefit plans for employers, unions, and government (including some elements of Social Security).
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- Publication Date: May 30th, 2024
- ISBN: 9781685612351
- Subject: Banking/Financial Institutions
- Series: Nutshells
- Type: Overviews
- Description: Authoritative coverage provides a foundation for understanding core concepts and recent developments in banking and financial institutions law. This Nutshell title covers subjects such as the history and structure of the financial services industry and its regulators, the interrelationship between banking law and monetary and economic policy, the regulation of banking itself (including market regulation, international banking, and thrift institutions), securities regulation, insurance regulation, and pension funds, retirement accounts and social security. The book concludes with an analysis of emerging issues in the law of financial intermediaries, including the need for harmonized rules in an increasingly transnational market, the impact of digital currencies and transactions on regulatory policy, and the threat that international crises pose for stable banking and financial markets.
