Banking Regulations

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Questions and Answers

What is the main goal of the European Central Bank (ECB)?

Increasing employment rates

Avoiding inflation (correct)

Promoting economic growth

Stabilizing currency prices

Which of the following central banks is considered to be under close control of its government?

Bank of England

Bank of Japan (BOJ) (correct)

European Central Bank (ECB)

Federal Reserve of the United States

What is a common economic problem experienced by countries with less independent central banks?

Stable currency prices

Low inflation rates

Higher inflation rates (correct)

High employment rates

What is the benefit of having a more independent central bank?

Better control of inflation Signup and view all the answers

Which of the following is NOT a characteristic of the European Central Bank (ECB)?

It is under close control of the European government Signup and view all the answers

What is the relationship between the government and the central bank in some Asian countries?

The central bank is under close control of the government Signup and view all the answers

What is the main purpose of the Financial Services Modernization Act?

To allow qualified U.S. financial-service companies to diversify their service offerings and reduce their overall business risk exposure Signup and view all the answers

What did the Financial Services Modernization Act overturn?

Long-standing provisions of the Glass-Steagall Act and the Bank Holding Company Act Signup and view all the answers

What is one of the requirements of the USA Patriot Act?

Financial-service providers are required to establish the identity of customers opening new accounts Signup and view all the answers

What is the purpose of the Bank Secrecy Act?

To combat money laundering Signup and view all the answers

What is one of the consequences of the Financial Services Modernization Act?

Banks are permitted to sell insurance and security services, provided they conform to state and federal rules Signup and view all the answers

What is the requirement for service providers to check the customer's ID against?

A government-supplied list of terrorist organizations Signup and view all the answers

What is the typical method used to establish the identity of customers opening new accounts?

By asking for a driver's license or other acceptable picture ID and obtaining the social security number of the customer Signup and view all the answers

Which act made a series of amendments to the Bank Secrecy Act?

The USA Patriot Act Signup and view all the answers

What act was passed in 2003 to regulate the finance industry?

FACT Act Signup and view all the answers

What is the name of the act passed in 2008 to stabilize the economy?

Emergency Economic Stabilization Act Signup and view all the answers

Which act aimed to prevent bankruptcy abuse and protect consumers?

Bankruptcy Abuse Prevention and Consumer Protection Act Signup and view all the answers

What is the name of the international agreement regulating banking?

Basel Agreement Signup and view all the answers

What act improved the regulation of credit cards?

Credit Card Accountability, Responsibility, and Disclosure Act Signup and view all the answers

What is one of the ways central banks can influence the supply of legal reserves?

By providing short-term loans to depository institutions Signup and view all the answers

What is the main goal of the regulatory safety net?

To protect small depositors from loss Signup and view all the answers

What happens when the Fed loans reserves to depository institutions?

The supply of legal reserves expands temporarily Signup and view all the answers

What is a major concern with the consolidation of financial firms?

It is unclear which nation should regulate their activities Signup and view all the answers

What is a suggested approach to the regulatory structure?

Simplify the current regulatory structure Signup and view all the answers

What is the interest rate charged by the Fed for discount window loans?

Discount rate Signup and view all the answers

Who sets the discount rate?

Each Reserve bank's board of directors Signup and view all the answers

What did the Competitive Equality in Banking Act and the Truth in Savings Act require banks to do?

Fully disclose their service policies and rates of return Signup and view all the answers

What happens when depository institutions repay their discount window loans to the Fed?

Their reserves decrease Signup and view all the answers

What was a major provision of the Riegle-Neal Interstate Banking Law?

Holding companies can acquire banks across state lines Signup and view all the answers

What is the purpose of the Federal Open Market Committee (FOMC) statement?

To set a target for the federal funds rate Signup and view all the answers

What restriction was placed on banking companies by the Riegle-Neal Act?

They could not control more than 10% of nationwide deposits or 30% of deposits in a single state Signup and view all the answers

What was a result of the Riegle-Neal Interstate Banking Law?

American banks could accept deposits and follow their customers across state lines Signup and view all the answers

What did the Riegle-Neal Act allow holding companies to do?

Consolidate their affiliated banks acquired across state lines Signup and view all the answers

What was prohibited by the Riegle-Neal Interstate Banking Law?

Controlling more than 10% of nationwide deposits or 30% of deposits in a single state Signup and view all the answers

What did the Riegle-Neal Act allow banks to do for the first time in U.S. history?

Accept deposits and follow their customers across state lines Signup and view all the answers

What was the purpose of the Competitive Equality in Banking Act and the Truth in Savings Act?

To require banks to fully disclose their service policies and rates of return Signup and view all the answers

Study Notes

Banking Laws and Regulations

The Competitive Equality in Banking Act and the Truth in Savings Act require banks to disclose their service policies and the true rates of return offered on savings and fees associated with credit services.
The Riegle-Neal Interstate Banking Law (1994) repealed previous provisions that prevented full-service interstate banking nationwide, allowing adequately capitalized and managed holding companies to acquire banks anywhere in the US.
The Riegle-Neal Act also allows interstate holding companies to consolidate their affiliated banks across state lines into full-service branch offices.
No single banking company can control more than 10% of nationwide deposits or more than 30% of deposits in a single state, unless a state waives this restriction.
For the first time in US history, American banks could accept deposits and follow their customers across state lines.

The Financial Services Modernization Act (The Gramm-Leach-Bliley Act, 1999)

The Gramm-Leach-Bliley Act permitted banking companies to affiliate with insurance and securities firms under common ownership.
Securities and insurance companies could form financial holding companies that control one or more banks.
Banks were permitted to sell insurance and security services, provided they conform to state and federal rules.
The law's purpose was to allow qualified US financial-service companies to diversify their service offerings and reduce their overall business risk exposure.

The USA Patriot Act

The USA Patriot Act made amendments to the Bank Secrecy Act, which was originally passed in 1970 to combat money laundering.
Financial-service providers must establish the identity of customers opening new accounts or holding accounts whose terms are changed.
Service providers are required to check the customer's ID against a government-supplied list of terrorist organizations and report any suspicious activity in a customer's account.

21st Century Laws and Regulations

The FACT Act of 2003, the Check Clearing for the 21st Century Act (Check 21 Act), the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and the Federal Deposit Insurance Reform Act of 2005 were enacted.
The Emergency Economic Stabilization Act of 2008, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, and the Dodd-Frank Wall Street Reform and Consumer Protection Act (FINREG) of 2009 were also enacted.
Basel I, II, and III agreements were implemented.

Unresolved Regulatory Issues

The regulatory safety net set up to protect small depositors from loss, usually through government-sponsored deposit insurance, is a challenge.
Training regulators to be effective in a complex financial marketplace is a challenge.
Consolidation and convergence of the financial-services industry into fewer, but bigger, firms raises questions about the need for fewer regulators.
Simplifying the current regulatory structure and achieving greater efficiency is a challenge.
Global regulation of financial firms is a challenge.

The Central Banking System

The European Union has a central bank, the European Central Bank (ECB), which is relatively free and independent of governmental control.
The ECB's main goal is to avoid inflation.
In contrast, the Bank of Japan (BOJ), the People's Bank of China (PBC), and central banks in other parts of Asia appear to be under close control of their governments.
More independent central banks have been able to achieve better economic performance, particularly in controlling inflation.

Central Bank Policy Tools

Many central banks are an important source of short-term loans for depository institutions.
The Fed's loan rate, the discount rate, is set by each Reserve bank's board of directors and must be approved by the Federal Reserve Board.
When the Fed loans reserves, the supply of legal reserves expands temporarily, which may cause loans and deposits to expand.
When these discount window loans are repaid, the borrowing institutions lose reserves and may be forced to curtail the growth of their deposits and loans.

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Description

This quiz covers the laws and acts that regulate banking practices, including the Competitive Equality in Banking Act and the Truth in Savings Act. It discusses the requirements for banks to disclose their service policies and rates of return on savings and fees associated with credit services.