Depository Insurance

Choose one of the following two assignments to complete this week. Do not do both assignments. Identify your assignment choice in the title of your submission.

Overview for Critical Thinking Assignment for both Options #1 and #2
Be sure to read this overview before deciding which option to complete.

Bank regulation is continuously evolving in response to economic and competitive conditions. Although many issues regarding the future structure and operating environment of financial services institutions have been debated recently, the financial crisis of 2007–2009 put the need for regulatory reform of the fragmented system of financial regulation in the United States back in the spotlight (Rose & Hudgins, 2013). Key facets of many of the outstanding regulatory issues are capital adequacy and regulatory reform. Regulatory efforts to increase capital impose significant restrictions on bank operating policies. Many large banks with access to national markets can issue common stock, preferred stock, or subordinated capital notes to support continued growth, and they are relatively unaffected by minimum capital ratios (Rose & Hudgins, 2013). Smaller banks, however, do not have the same opportunities. They lack a national reputation, and investors generally shy away from purchasing their securities. These banks often rely instead on internally generated capital and find their activities constrained by a deficiency in retained earnings.

According to Rose and Hudgins (2013), depository institutions are the most heavily regulated financial institutions in the United States, and regulators attempt to maintain public confidence in depository institutions and the financial system through federal deposit insurance. Regulators periodically examine individual depository institutions and provide supervisory directives that request changes in operating policies (Rose & Hudgins, 2013). The purpose is to guarantee the safety and soundness of the banking system by identifying problems before a depository institution’s financial condition deteriorates to the point where it fails and the FDIC has to pay off insured depositors (Rose & Hudgins, 2013). Regulators expend considerable effort analyzing and modifying regulations regarding what prices financial institutions can charge and what products and services they can offer.

Although regulation is designed to ensure the safety and soundness of the financial system, it cannot accomplish all of its goals. For example, regulation does not prevent bank failures. It cannot eliminate risk in the economic environment or in a bank’s normal operations. It does not guarantee that bankers will make sound management decisions or act ethically. It simply serves as a guideline for sound operating policies.

Rose, P., & Hudgins, S. (2013). Bank management and financial services (9th ed.). New York

Option #1: Bank Regulation Essays

Write three separate essays in which you develop a case for or against the following regulations of financial institutions:

  1. Restrictions on the number of new financial services institutions allowed to enter the industry each year; be sure to address foreign banks in this discussion
  2. Restrictions on which depository institutions are eligible for government-sponsored depository insurance; be sure to address foreign banks in this discussion
  3. Restrictions on the ability of financial firms to underwrite debt and equity securities issued by their business customers; be sure to address foreign banks in this discussion

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