Bank Regulations Banking & Finance

Bellringer Complete the Chapter 6 online pretest

Section 6.1 Objectives Explain the conditions that existed in the banking industry during the 1920s and 1930s Describe the provisions of the Glass-Steagall Act Explain why the legislation that created FIRREA and FDICIA was needed. Describe how the Sarbanes-Oxley Act increases transparency and accountability in banking.

Setting the Stage for Failure

Causes of Bank Failures During the 1920s and 1930s CauseEffect Crop failures during the 1920s Small banks in farming areas were affected as farms were foreclosed. ContagionLack of faith in the soundness of banks spreads like the common cold. Branching State banks were largely prohibited from opening branches in other locations. National banks opened branches that provided stiff competition to unit banks. Number of BanksThe number of banks increased more than the population’s need for banks did. Reduced travel costs Because it was too difficult or too expensive to travel far, people banked locally. Cars and train travel became less expensive, which allowed people to travel outside of their town to do their banking. Stock market crash Banks had invested in the stock market and lost much of their assets during the crash.

Consequences of the Stock Market Crash Banks and investment banking operations that owned securities lost most of their investment. Unemployment was quite high. Customers defaulted on loans Banks paid higher interest rates to attract depositors. Loans became unprofitable.

Bank Run Occurs when a large number of depositors withdraw all of their money from the bank at the same time. Deposits were not insured at the beginning of the Great Depression.

Checkpoint List four factors that lead to the many bank failures during the Great Depression.

Glass-Steagall Video: “U.S. History Project—Glass Steagall” Go to ading.htm

Checkpoint What were two goals of the Glass-Steagall Act? How did the Glass-Steagall Act affect interest rates?

Relaxing Depression-Era Regulation... You Research. You Learn. You Summarize. Federal Home Loan Bank Board Financial Institution Reform, Recovery, and Enforcement Act (FIRREA) Federal Depository Insurance Corporation Improvement Act (FDICIA)

Checkpoint Name two federal agencies that were eliminated under the FIRREA.

Sarbanes-Oxley Act Video: “Sarbanes-Oxley Act”

Checkpoint What is the major purpose of the Sarbanes- Oxley Act?

3-2-1 Review: Prepare to Share

Bellringer Short Research Assignment: Google “Equator Principles” A student will be randomly selected to provide a detailed explanation of the concept. The entire class will receive 4 dots if correct. If unprepared, the entire class will lose 4 dots.

Section 6.2 Objectives Describe the regulations that govern consumer credit. Explain the need for regulations that focus on fair access to credit.

ACT RIGHT! Protecting Borrowers Truth in Lending Act Fair Credit Reporting Act Fair Credit Billing Act Credit CARD Act Promoting and Ensuring Fair Access to Credit Community Reinvestment Act (CRA) Home Mortgage Disclosure Act (HDMA) Equal Credit Opportunity Act (ECOA)

Group Activity You will be split into 2 groups: – Protecting Borrowers – Promoting and Ensuring Fair Access to Credit Create a rap song thoroughly explaining your assigned topic Provide written (or typed) lyrics Provide the instrumental music Be prepared to be recorded. Rubric

Section 6.2 Quiz 1.What are the two most important disclosures that are required under the Truth in Lending Act? 2.What is the purpose of the Fair Credit Reporting Act? 3.According to the Fair Credit Billing Act, how long does a consumer have to dispute an error on his or her account statement? 4.Which law requires that credit card issuers state the monthly payment amount necessary to pay off a cardholder’s existing balance in 36 months? 5.Under the Equal Credit Opportunity Act, lenders may not discriminate against potential borrowers based on what factors?

Bellringer APR = Total interest paidX 360 days Loan amountLength of loan in days Bank A will loan you the $1,000 for six months (180 days), and you must repay the $1,000 plus $50 interest at the end of the six months. APR = $50/1,000 X 360/180 =.05 X 2 =.10 = 10%

Section 6.3 Objectives Compare and contrast deregulation laws. Explain the importance of compliance in the banking industry.

Deregulation (Prepare for Dictation) Depository Institutions Deregulation and Monetary Control Act (DIDMCA) Garn-St. Germain Act Interstate Banking and Branching Efficiency Act Gramm-Leach-Biley Act

Checkpoint Why did a movement to deregulate banks start in the 1980s? How much was federal deposit insurance under DIDMCA? What is the difference between money market deposit accounts (MMDAs) and money market mutual funds (MMMFs)? Which law did the Interstate Banking Act override?

Compliance Dual banking system (both states and federal government pass and enforce bank laws Functional areas include: – Advertising; – Anti-money laundering; – The Bank Secrecy Act; – Depository operations; – Lending; – Loan servicing; and – Loss prevention

Compliance Plan for compliance must be strong. Plan should: – Identify areas of high risk – Establish internal controls – Provide for an audit by outside source on ongoing basis – Assign someone in organization to manage all compliance matters (compliance officer) – Provide training to all staff working in areas where compliance is an issue – Set up system to verify bank customer identity

Checkpoint What are the functional areas of bank compliance?

Individual Activity Decide if you are in favor of bank deregulation or not. Outline 3 main reasons for your position. Defend your position in 3.5 essay format. Rubric

Unit 2 Summative Assessment Get Ready! Handout will be provided!!!