The document summarizes the history and evolution of banking regulation in the United States. It outlines key pieces of banking legislation and the government agencies responsible for regulating different aspects of the banking industry. Major laws included the National Banking Act, Federal Reserve Act, Glass-Steagall Act, and Gramm-Leach-Bliley Act. The regulations aimed to promote stability and oversight of the banking system while laws in the late 20th century encouraged deregulation and consolidation in the industry.

1. Chapter Two
The Impact of Government Policy and
Regulation on Banking and the
Financial-Services Industry
©2008 The McGraw-Hill Companies,
McGraw-Hill/Irwin
All Rights Reserved

2. Reasons for the Regulation of Banks
• Protection of the Safety of the Public’s Savings
• Control of the Supply of Money and Credit
• Ensure Equal Opportunity and Fairness in
Access to Credit
• Promote Public Confidence in the Financial
System
• Avoid Concentration of Power
• Support of Government Activities
• Help for Special Segments of the Economy
McGraw-Hill/Irwin 2-2
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3. Principal Regulatory Agencies
• Federal Reserve System
• Comptroller of the Currency
• Federal Deposit Insurance Corporation
• Department of Justice
• Securities and Exchange Commission
• State Banking Boards or Commissions
McGraw-Hill/Irwin 2-3
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4. Laws Limiting Bank Lending and
Risk
• National Banking Act
• Federal Reserve Act
• Glass Steagall Act – Banking Act of 1933
McGraw-Hill/Irwin 2-4
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5. Laws Restricting Services Banks and
Other Depository Institutions Can
Offer
• National Banking Act
• Glass-Steagall Act – Banking Act of 1933
• Competitive Equality in Banking Act
• FDIC Improvement Act
McGraw-Hill/Irwin 2-5
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6. Laws Expanding the Services Banks
and Other Depository Institutions
Can Offer
• Depository Institution Deregulation and
Monetary Control Act (DIDMCA)
• Garn-St. Germain Act
• Gramm-Leach-Bliley Act
McGraw-Hill/Irwin 2-6
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7. Laws Prohibiting Discrimination in
Offering Services
• Equal Credit Opportunity Act
• Community Reinvestment Act
McGraw-Hill/Irwin 2-7
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8. Laws Mandating Increased
Information to Consumers
• Consumer Credit Protection Act
• Competitive Equality in Banking Act
• Truth in Savings Act
• Gramm-Leach-Bliley Act
• Fair and Accurate Transaction Act
McGraw-Hill/Irwin 2-8
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9. Laws Requiring More Accurate
Financial Reporting
• Sarbanes-Oxley Act
McGraw-Hill/Irwin 2-9
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10. Laws Regulating Branch Banking
• Glass-Steagall Act – Banking Act of 1933
• Riegle-Neal Interstate Banking and
Branching Efficiency Act
McGraw-Hill/Irwin 2-10
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11. Laws Regulating Holding Company
Activity
• Bank Holding Company Act
• Riegle-Neal Interstate Banking and
Branching Efficiency Act
• Gramm-Leach-Bliley Act
McGraw-Hill/Irwin 2-11
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12. Laws Regulating Bank Mergers
• Bank Merger Act
• Riegle-Neal Interstate Banking and
Branching Efficiency Act
McGraw-Hill/Irwin 2-12
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13. Laws Assisting Federal Agencies in
Dealing with Failing Depository
Institutions
• Garn-St. Germain Depository Institutions
Act
• Competitive Equality in Banking Act
• Financial Institutions reform, Recovery
and Enforcement Act
• FDIC Improvement Act
• Federal Deposit Insurance Reform Act
McGraw-Hill/Irwin 2-13
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14. Laws Requiring Sharing of Customer
Information with the Government
• Bank Secrecy Act
• USA Patriot Act
McGraw-Hill/Irwin 2-14
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15. National Banking Act (1863,1864)
• Passed During the Civil War to Help Fund
the War
• Created A New Division of the Treasury,
the Comptroller of the Currency
• Created National Banks with a Federal
Charter
McGraw-Hill/Irwin 2-15
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16. Federal Reserve Act of 1913
• Passed After a Series of Financial Panics at
the Beginning of the Century
• Created the Federal Reserve System
• Gave the Fed the Authority to Act as the
Lender of Last Resort
• Created to Provide a Number of Services
to Member Banks
• Today the Fed Controls the Money Supply
McGraw-Hill/Irwin 2-16
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17. Glass-Steagall Act 1933
• Passed During the Great Depression
• Separated Investment and Commercial
Banking
• Created the FDIC
• Fed Given the Power to Set Margin
Requirements
• Prohibited Interest to be Paid on Checking
Accounts
McGraw-Hill/Irwin 2-17
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18. FDIC Act 1935
• Addressed the Issues Left Out of the
Glass-Steagall Act
• Gave the FDIC the Power to Examine
Banks and Take Necessary Action
McGraw-Hill/Irwin 2-18
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19. Social Responsibility Acts
• 1968 – Full Information on Terms of Loans
Must be Given
• 1974 – Cannot Be Denied a Loan Based on
Age, Sex, Race, National Origin or
Religion
• 1977 – Cannot Discriminate Based on the
Neighborhood in Which Borrower Resides
• 1987 and 1991 – Banks Must Disclose Full
Terms on Deposit and Savings Accounts
McGraw-Hill/Irwin 2-19
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20. Depository Institution Deregulation
and Monetary Control Act
(DIDMCA) 1980
• First of Deregulation Acts
• Phased Out Interest Rate Ceilings
• Allowed Interest to be Paid on Checking
Accounts (NOW Accounts)
• Term Transaction Account Created – All
Institutions with These Accounts Subject
to Reserve Requirements
McGraw-Hill/Irwin 2-20
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21. Garn-St. Germain Act 1982
• Continued the Deregulation of DIDMCA
• Created Money Market Deposit Account
• FDIC Could Arrange Mergers Across State
Lines if Needed
• Loan Limits were Liberalized
• Banks in Need of Capital Could Get It
From the FDIC
McGraw-Hill/Irwin 2-21
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22. Competitive Equality in Banking Act
1987
• Allowed Creation of Special Bridge Banks
for Failed Institutions
• Bridge Banks Are Special National Banks
Operated by the FDIC
• Bridge Banks Created When Bank is
Essential to the Community
McGraw-Hill/Irwin 2-22
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23. Financial Institutions Reform, Recovery
and Enforcement Act (FIRREA) 1989
• Created in Response to Large Number of Bank and
S&L Failures
• Combined FDIC and FSLIC into the FDIC and
Dismantled S&L Regulatory Body
• Created the RTC to Take on the Assets of Failed
S&Ls
• $50 Billion Authorized to Handle Failed Institutions
(Later Increased)
• Allowed Bank Holding Companies to Purchase
Savings Banks
McGraw-Hill/Irwin 2-23
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24. FDIC Improvement Act 1991
• Move Towards Re-regulating the Industry
• Requires Regulators to Take Prompt
Corrective Action When a Bank has
Problems
• Prompt Corrective Action Based on the
Capital Position of the Bank
• Requires Regulators to Develop New
Standards for the Banks They Regulate
McGraw-Hill/Irwin 2-24
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25. Riegle-Neal Acts 1994
• Bank Holding Company Can Acquire Banks
Nationwide
• Consolidation of Interstate BHCs into Branches
• Smaller Well Managed Banks Only Examined
Every 18 Months
• Community Development Fund Created to
Promote Development of Depressed Local
Communities
McGraw-Hill/Irwin 2-25
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26. Gramm-Leach-Bliley Act 1999
• Permits Banking-Insurance-Securities Affiliations
• Consumer Protections for Consumers Purchasing
Insurance Through a Bank
• Must Disclose Policies Regarding the Sharing of
Customers’ Private Information
• Customers are Allowed to ‘Opt Out’ of Private
Information Sharing
• Fees for ATM Use Must be Clearly Disclosed
• Federal Crime to Use Fraud or Deception to Steal
Someone’s Account or Personal Information
McGraw-Hill/Irwin 2-26
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27. The USA Patriot Act 2001
• Requires Banks and Financial Service
Providers to Establish the Identity of their
Customers
• Requires Banks and Financial Service
Providers to Check the Customer’s ID Against
Government-Supplied Lists of Possible
Terrorists and Terrorist Organizations
• Report Suspicious Activity in Customer’s
Account to the US Treasury
McGraw-Hill/Irwin 2-27
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28. The Sarbanes–Oxley Accounting
Standards Act 2002
• Creates Panel to Promote Accurate and
Objective Audits of Public Companies
• Top Corporate Officers Must Vouch for
the Accuracy of their Companies’
Financial Statements
McGraw-Hill/Irwin 2-28
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29. Fair and Accurate Credit
Transactions (FACT) Act 2003
• Passed in Response to Increased Problem
of Identity Theft
• Federal Trade Commission Must Make it
Easier for Consumers Victimized to File
Theft Report
• Individuals and Families are Entitled to
One Free Credit Report Each Year
McGraw-Hill/Irwin 2-29
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30. Check 21 2004
• Reduces the Need for Banks to Transport
Paper Checks
• Can Provide a Customer with ‘Substitute’
Check Which Contains Image of Front and
Back of Original Check
• Allows for Electronic Transmission of
‘Substitute’ Checks for Clearing of Checks
McGraw-Hill/Irwin 2-30
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31. Federal Deposit Insurance Reform
Act 2006
• First Significant Increase FDIC Coverage in 25
years
• Raises FDIC Insurance Limits from $100,000 to
$250,000 for Certain Retirement Deposits
• FDIC and NCUA are Empowered to Adjust
Deposit Insurance Limits Every 5 years for
Inflation
• Merges Bank Insurance Fund and Savings
Association Insurance Funds
McGraw-Hill/Irwin 2-31
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32. Regulating Nonbank Financial-
Service
• Credit Unions • Finance Companies
– National Credit Union – State Governments
Administration • Mutual Funds
• Savings Associations – Securities and Exchange
– Office of Thrift Supervision Commission
• Money Market Funds • Securities Brokers and
– Securities and Exchange Dealers
Commission – Securities and Exchange
• Insurance Companies Commission
– State Insurance • Financial Conglomerates
Commissions – Functional Regulation
McGraw-Hill/Irwin 2-32
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33. Organizational Structure of the
Federal Reserve System
• Board of Governors
• Federal Open Market Committee
• 12 Federal Reserve Banks
• Member Banks
McGraw-Hill/Irwin 2-33
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34. European Central Bank
• Central Policy is to Maintain Price
Stability
• Structure is Similar to the Federal Reserve
• Eleven Member Nations
McGraw-Hill/Irwin 2-34
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