L6 Flashcards
6 types of regulation for CB
- safety and soundness
- monetary policy
- credit allocation
- consumer protection
- investor protection
- entry and chartering
4 layers of safety and soundness regulation
- diversification of assets
- minimum capital / equity owner of CB must contribute to operations
- provision of guarantee funds
- monitoring and surveillance
net regulatory burden
difference between private benefits and costs
Dodd - Frank Wall Street reform act 2010
focuses on regulation with 5 key objectives
promote supervision, raise regulatory standards
monetary policy
- regulators impose minimum level of required reserves to be held against deposits, inside money
- view RR as a tax / positive cost of undertaking intermediation
credit allocation
- support CB sending to important sectors such as housing
may require Cb to hold minimum assets in one sector
consumer protection
- regulations imposed to prevent CB from discriminating unfairly in lending
- community reinvestment act 1977
- consumer financial protection bureau - protect consumers from unfair and deceptive practices
- home mortgage disclosure 1975
investor protection
protect investors who use VB to purchase securities
- securities act 1933/4
- investment company act 1940
entry and chartering regulation
- entry into commercial banking is regulated
- in/decreasing cost of entry into financial sector affects profitability of currently competing firms
4 regulators
- fed deposit insurance corp
- office of comptroller of currency
- fed reserve
- state bank regulators
two segments of financial systems
- commercial banking: deposits and lending
- investment banking: underwriting, issuing and distribution of securities
common equity tier 1 risk based cap
common equity T1 / risk weighted assets
T1 risk based capital ratio
T1 capital (CE T1 + Additional T1 cap) / RWA
total risk based capital ratio
total cap (T1 + T2) / RWA
T1 leverage ratio
T1 cap / total exposure
