National Bank Act of 1863
Created OCC, national banking system
Federal Reserve Act of 1913
Established FED Reserve System
McFadden Act of 1927
Restricted interstate branching
Glass-Steagall Act of 1933
Separated commercial and investment banking
Deposit Insurance Act of 1933
Created FDIC deposit insurance
Basel Accord (I) of 1988
Required 8% capital ratio on risk-weighted assets
Gramm-Leach-bliley Act of 1999
Repealed Glass-Steagall, allowed financial conglomerates
Reason to regulate
o To maintain financial stability
Prevent bank runs and ensure confidence in the financial system by avoiding sudden collapses
o Promote market transparency
Mandate disclosure of accurate financial information
Capital to asset ratio
o CAR = BC / TA
o Measures how much a bank’s assets are financed by its own capital rather than by borrowed funds
o A higher ratio means the bank has more of its own money a risk, making it more stable
o Lower ratio means bank relies heavily on borrowed funds, making it more vulnerable
Bank Chartering
o Process by which a bank receives official authorization from a government agency to operate as a financial institution
o Ensures safety, and gives banks legal right to conduct banking activities
Historical Innovation
When there were high interest rate volatility banks faced major uncertainty in the market. Due to this uncertainty financial innovation happened in search of way to manage these risks. The development of ARMs helped banks protect profit margins and allowed customers to benefit from more flexible rates
