Regulation of Commercial Banking Case Study Example | Topics and Well Written Essays - 2000 words

Regulation of Commercial Banking - Case Study Example The purpose of such banking regulations, the justification for having such regulations and the extent to which these regulations are implemented in banking customs across the world are studied in some detail. Bank regulations comprise of government regulations that sets out certain requirements and rules, restrictions and guidelines, that banks, of different countries are supposed to follow to maintain the integrity of the financial system. Bank Regulations in the US is not as closely knit as in other countries and the regulators could be Federal Reserve Board, or other state regulatory bodies. The banking regulations across the world are focused not just on safety and security but also on privacy of customers, disclosure issues, anti money laundering issues, anti terrorism issues, promotion of lending to lower income groups, and fraud prevention. Different cities tend to have their own financial regulation laws and these laws are in place to allow governments and banks to work closely in matters related to national security and financial needs. The Bank Secrecy Act or BSA requires financial institutions to assist government agencies to detect money laundering practices. Financial institutions tend to keep records of cash purchases and file reports of transactions above a certain amount. These institutions are required to report suspicious activities of money laundering, fraud, privacy intrusion and tax evasion as well as other criminal activities to the government and appropriate authorities. Financial institutions are also required to invest in communities and a file must be maintained on the support provided to communities. Financial institutions are required to disclose data about home purchases, home finance, home purchase and pre-approvals, home improvement, and refinance applications as well as multifamily dwellings in accordance with the Home Mortgage Disclosure act. Apart from this and the Community Reinvestment Act, there are Reserve Requirements for certain Institutions. The reserve requirements indicate the minimum reserve that banks must have so that this money as deposits could come to some use during severe recession. Barrios and Blanco (2003) analyses the extent to which banking firms set their rates of capital equity over assets and have developed two theoretical models that tend to demonstrate capital ratio for firms which are affected and not affected by capital regulation. Freixas and Santomero (2002) use the regulatory theory to analyze the theory of banking regulation and consider the justifications of financial intermediation to identify market failures that would make certain banking regulations necessary. The analysis of regulation tends to compare within the domains of banking and industrial organization and shows why banking regulations act as a safety net for banks and why and how it should be structured in a way that could make banking systems more efficient. In a study by Hendrickson and Nichols (2001) annual bank insured data were utilized from 1936 through 1989 to evaluate bank regulations and bank risks with cross country comparisons. A bank tends to operate in a