Regulation and Deregulation Lesson

Regulation and Deregulation 

Banking is among the most regulated industries in the U.S. Banks are regulated by state governments as well as several federal agencies. Some of the agencies responsible for bank regulations and compliance are:

Federal Reserve (Fed) - Supervises and regulates a variety of financial institutions in order to make sure banks handle customer money safely and fairly.

Office of the Comptroller of the Currency (OCC) - The primary regulator of banks chartered under the National Bank Act.

Federal Trade Commission (FTC) - Protects consumer information and privacy. It works to make sure sensitive bank customer information is safe.

Federal Deposit Insurance Corporation (FDIC) - Insures deposits in insured banks and works to make sure these banks handle the funds safely and according to regulations.

Office of Thrift Supervision (OTS) - Supervises and regulates savings and loan associations across the country.

Congress also has a hand in regulating and deregulating banks. Let's take a look at three major legislative acts that have had a huge influence on the banking industry and our economy.

Legislative Acts Influence the Banking Industry: Glass-Steagall Act of 1933: In order to have deregulation, and industry must first be regulated. The Glass-Steagall Bank of 1933 was enacted to repair the damage done by banks speculating on stocks prior to the 1929 Stock Market crash. As we learned in our unit on Banking History, banks and their customers invested in the stock market and once it crashed, loans went into default, causing banks to fail. Glass-Steagall was necessary for creating rules that would prevent this kind of activity in the future. Gramm-Leach-Bliley Act 1999: The Gramm-Leach-Bliley Act effectively repealed Glass-Steagall and deregulated the banking industry. Restricted from mergers with other financial institutions, banks were barred from adding agencies involved in insurance or securities sales and management. Gramm-Leach-Bliley opened the door for the creation of mega institutions that participated in banking, insurance, and securities sales. Banking Act of 2010: In 2008, The U.S. entered financial crisis. Large banks such as Bear Sterns and Lehman Brothers were bankrupt, and the country was on the verge of economic collapse. President Obama and Congress passed legislation to undergird the failing financial industry; then turned to establishing banking reform laws that would prevent it from happening again. In 2010, Congress passed and the President signed a law that would put new restrictions on the financial industry.

Review

Glass-Steagall came in the wake of what event? The Stock Market crash of 1929
Why were banks blamed for the Stock Market crash? They were accused of too much speculation and risky investments
Specifically, what did Glass-Steagall do? It prohibited banks from owning brokerage houses
What did Gramm-Leach-Bliley do? Repealed Glass-Steagall
What is the other name for Gramm-Leach-Bliley? Financial Services Modernizations Act of 2000
What did Gramm-Leach-Bliley allow that had been previously outlawed? Merger of banking, insurance, and brokerage companies. 

 

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