Function, Purpose, and Regulation of Financial Institutions

Question 1

Banks

Answer 1

• Primarily in the business of helping individuals and businesses manage money.
• The regulation depends on the type of charter that was given to the bank.

Question 2

Who regulated banks?

Answer 2

• State chartered banks are regulated by the respective state’s banking department or commissioner.
• Federally chartered bank is regulated by the comptroller of the currency.
• All banks are regulated by the Federal Deposit Insurance Corporation (FDIC), and if a member of the federal reserve system, by the Federal Reserve Board

Question 3

Credit Unions

Answer 3

• operated for the benefit of their members who are associated in one-way or another (by employer or profession).
• Do not make business loans
• primarily serve individuals and families

Question 4

who regulates Credit Unions?

Answer 4

• The National Credit Union Administration

- credit union funds are also federally insured

Question 5

Brokerage Companies

Answer 5

• Generally operate to buy and sell securities for investors
• may also offer banking and most sell insurance
• since most buy and sell securities of their own accounts, they are known as “broker-dealers”

Question 6

Who regulates brokerage companies?

Answer 6

• broker-dealers are regulated at the federal level
• operate under the oversight of the SEC
• directly regulated by the National Association of Securities Dealers (NASD), now known as FINRA

Question 7

Insurance Companies

Answer 7

• issue various forms of insurance and annuities

- larger insurance companies also offer mutual funds, other securities, and some banking services.

Question 8

Who regulates Insurance Companies?

Answer 8

-insurance companies register first in the state of their incorporation or headquarters and then secondly, register with the state insurance department in the state in which they wish to sell insurance policies and/or annuities

Question 9

National Association of Insurance Commissioners (NAIC)

Answer 9

• suggests and assists in drafting insurance laws regulating insurance companies in a specific state.
• state legislatures ultimately must pass all legislation affecting insurance companies operating them.

Question 10

Mutual Fund Companies

Answer 10

• establish a number of investment companies, open or closed end, manage them and sell shares of those companies to investors.
• some work closely with insurance companies managing the separate accounts held in the insurance companies variable products.

Question 11

Who regulates Mutual Fund Companies

Answer 11

-must register with the SEC and are responsible to it for all trading and security activities.

Question 12

Trust Companies

Answer 12

• Usually owned by 1 of 3 types of entities:
  
  • Independent partnership
  • a bank
  • a law firm
• they specialize in being trustee of various types of trusts via the trust company name
• frequently serves as an executor or personal representative in settling the estate of a deceased grantor or creator of the trust

Question 13

Who regulates Trust Companies

Answer 13

• the same agency responsible for the regulation of the broader ownership entity
• OCC