| Term | Definition |
|---|
| closure | gives Fed authority to close a foreign bank |
| Examination | Fed has power to examine each office of a foreign bank |
| Deposit Taking | only foreign subsidiaries with access to FDIC insurance can take retail deposits under $100,000 |
| Activity Powers | state-licensed branches and agencies of foreign banks were not allowed to engage in any activity that was not permitted to a federal branch |
| Entry | must now have the Fed's approval |
| Regulation of foreign banks in the U.S. | the (FBSEA) of 1991 gave additional powers to the Federal Reserve/to extend federal regulatory authority over foreign banking organizations in the US, especially when these organizations had entered using state licenses |
| International Banking Act (IBA) of 1978 | declared foreign banks are to be regulated the same as national domestic banks |
| Pre-IBA | foreign agencies and branches entering US with state licenses were not subject to Fed's reserve requirements, audits and exams, interstate branching restrictions, or restrictions on securities underwriting activities/ |
| Pre-IBA | had no access to Fed's discount window, no direct access to Fedwire and fed funds market, and no access to FDIC deposit insurance |
| Post-IBA | Foreign banks were required to hold Fed specified reserve requirements if their worldwide assets exceeded $1 billion, and they became subject to Fed exams and to McFadden and Glass-Stegall |
| Post-IBA | gave foreign banks access to Fed's discount window, Fedwire, and FDIC insurance |
| IBA | accelerated expansion of foreign bank activities in US |
| Foreign Bank Supervision Enhancement Act (FBSEA) of 1991 | gave additional powers to the Federal Reserve/to extend federal regulatory authority over foreign banking organizations in the US, especially when these organizations had entered using state licenses |
| Commercial banks provide many unique services | information, liquidity, price-risk reduction, transaction cost, maturity intermediation, and payment services |
| Commercial banks provide many unique services | money supply transmission, credit allocation, intergenerational wealth transfers, and denomination intermediation |
| commercial banks are regulated at the | federal (and sometimes state) level |
| Six types of regulations seek to enhance the net social benefits of commercial banks' services to the economy | Safety and soundness, Monetary policy, Credit allocation, Consumer protection, Investor protection, Entry and chartering |
| regulators have developed layers of protective mechanisms that balance a CB's profitability against its | solvency, liquidity, and other types of risk |
| assets must be diversified | cannot make loans greater than 10% of their equity capital to any one borrower |
| must maintain adequate equity capital levels to | protect against insolvency risk |
| The higher the proportion of capital contributed by owners, | the greater the protection against insolvency risk for liability claimholders such as depositors |
| provision of guarantee funds such as the Deposit Insurance Fund (DIF) | protects depositors in the event of default and prevents bank runs |
| Deposit insurance mitigates a rational incentive | depositors otherwise have to withdraw their funds at the first hint of trouble |
| monitoring and surveillance | banks must submit (publicly accessible) quarterly reports and are subject to on-site examinations |
| Another motivation for regulation concerns the special role that banks | play in the transmission of monetary policy |
| the Central Bank (the Federal Reserve) directly controls the quantity | of notes and coin (i.e., outside money) in the economy |
Combine with other sets
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