Federal financial regulation in the United States has evolved through a series of piecemeal responses to developments and crises in financial markets. This report provides an overview of current U.S. financial regulation: which agencies are responsible for which institutions and markets, and what kinds of authority they have. There are two traditional components to U.S. banking regulation: deposit insurance and adequate capital. Commercial banks accept a quid pro quo that was adopted in response to widespread bank failures during the 1930s. Through deposit insurance, the federal government provides a safety net for some banking operations and in return the banks that are exposed to depositor runs accept federal regulation of their operations, including the amount of risk they may incur. Since the 1860s, federal banking regulation has sought to prevent excessive risk taking by banks that might seek to make extra profit by reducing their capital reserves--at the time called "wildcat" banks. There are five federal bank regulators, each supervising different (and often overlapping) sets of depository institutions. Federal securities regulation is based on the principle of disclosure, rather than direct regulation. Firms that sell securities to the public must register with the Securities and Exchange Commission (SEC), but the agency has no authority to prevent excessive risk taking. SEC registration in no way implies that an investment is safe, only that the risks have been fully disclosed.
Source: Congressional Research Service
Download full pdf publication | Link to online summary
No comments:
Post a Comment