...FISV 3040 Money & Capital Market Research Paper On Financial System Reform Presented to Professor Jean Holt October 29, 2015 Prepared by Yi Que Abstract: 1998-2013: An Analysis of the Tangible and Intangible Costs of Financial Regulatory Reform and Deregulation (The Financial Institutions Deregulation and Reform Act 1999* and the Dodd-Frank Act 2010) on United States Capital Markets and Institutions as measured by Debt Loan Types and Bank Profitability. Key words: Glass-Steagall Act, Financial Institutions Deregulation and Reform Act, Dodd-Frank Act, investment bank, financial statements. II. Table of Content I. Cover Page1 II. Table of Content2 Abstract, key works2 III. Introduction3 IV. Statement of Problem5 V. Background12 V. Results from Research & Summary13 VI. Works Cited 14 III. Introduction United Sates financial reform dates from the last century, in 1930s’ Great Depression. To have a brief talk about US financial reform, which is a long and arduous project. Aim to reach the goal that has to include three important acts: Glass-Steagall Act, Gramm-Leach-Bliley Act, and Dodd-Frank Act. Throughout history, the financial system in US has experienced the mixed operation and separated operation processes, as well as various financial institutions and regulatory authorities continue to be perfected. US financial reform and innovation continue to promote the US economy continues to develop and progress. Next, I will briefly introduce each act in the basic...
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...1) Throughout this class we have discussed the conduct of the major players at financial institutions and their role in leading their companies to the brink of failure, and in some cases have been successful (Bear Stearns, Lehman & AIG). With that as a starting point how important is character and ethics? What role(s) do you think boards of directors should play and did they exercise their fiduciary responsibilities to the shareholders and employees? Money is an important character in various financial institutions, but by itself is not necessarily evil. Rather, it is something that is used to trade goods and services. We call it "currency", and it allows us to do business between organizations. Unfortunately, that is the sterile dictionary-type definition but it does not capture all the issues that are involved with finances. In corporate life, just like in many other realms, money causes all sorts of problems. People make incredibly bad decisions because of money, and plenty of people have gone to prison because of their money-related behavior. This is why people always approach money with a certain amount of uneasiness. Here are a few thoughts on why financial management ethics are important. The numbers do not have a soul, so they cannot govern themselves. They must be managed by people. Ethics are important because finances make people do some strange things. The spreadsheet does not have a conscience, and the goal of working with spreadsheets is to make numbers add...
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...was never a clear path on how to reverse the demand that was cause by repealing the Glass-Steagall Act of 1933. Although there has been other regulations and acts pass since the repeal of the Act of 1933, the ability to restore and strength our dollar has been an uphill battle to take control of it. What was known within our economic system to readjust and rebuilt had not worked to establish balance playing field on the world stage or our domestic economy. As we look forward toward corrective action though the Dodd-Frank Act, Sarbanes-Oxley Act or the Global Legal Settlement of 2002 which reduced the conflict of interest as did the Sarbanes-Oakley Act. These conflicts encompass “underwriting and research in investment banks, auditing and consulting in accounting firms and credit assessment and consulting in credit rating agencies.” (Sanati, 2009) So while we have had a slow and diosmose recovery from this crisis, I will try to answer some of the questions presented to us today on our ability to fully recover and instill some preventative measures to ensure a worst and more devastating financial crisis from taking hold of our economic system. Keywords: Glass-Steagall Act, Bailout, Dodd-Frank Act The Federal Reserve System & Financial Crisis The key factor that protected the banking customers in the United States was repealed in 1988 by than President Bill Clinton; the Glass-Steagall Act of 1933 had placed a firewall between the Commercial banks and the Investment...
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...Glass-Steagall Act for Banks and Securities The banking and securities industries has had regulations since the 1930s or earlier. The laws are there to help regulate and give depositors some security. For one reason or another, the law has been changed, updated or appealed. The banking Act of 1933 is known as Glass–Steagall Act named after the Congressional sponsors Senator Carter Glass, a former Treasury secretary, and Senator Henry Steagall (Heakal, Reem). The Glass-Steagall foresaw problems with banks over lending and getting involved in securities. The Federal Deposit Insurance Corporation (FDIC) came out of the Act of 1933 (Stammers, Robert). The Federal Deposit Insurance Corporation (FDIC) wanted banks...
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...on today’s society. There were four main factors that attributed to this crisis; failures in banks, inequality distribution of wealth, overproduction and the crash of the stock market. During this time, Americans were devastated and hopeless because the economic growth was being replaced by a continuously contracting economy. It was not until Franklin D. Roosevelt was elected as president in 1932 did things take a turn for the better. As part of his administration, he put forward forth an institutional plan called the ‘New Deal’, which is a set of programs used to reform and provide aid the Great Depression. He hoped...
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...stimulate the American economy in the wake of the 1980s recession led to sweeping deregulation in the financial services sector (Komai) (Inside). This deregulation and the failure to properly enforce regulatory powers by those in the Federal Reserve and Treasury Department led to increasingly risky behavior by banks (Inside) (Das) (Rajan). The repeal of The Glass-Steagall Act in the late 90s meant that the banks engaging in these risky operations were larger than ever before and were using depositors’ money in order to trade for the benefit of the firm rather than its clients (Roubini) (Rajan) (Sorkin) and it is that risky behavior that ultimately led to the near collapse of the world’s economy. Although banking leadership must be held responsible for the practices that many institutions in the financial services sector engaged in (Sorkin), the failure to adequately regulate the banking industry gave banks the opportunities to engage in the behavior that caused the crisis (Inside) (Rajan) (Taylor). In the years since the crisis, and as the global economy continues in its efforts to recover, many have called for strict reform of Wall Street regulations (Acharya). Legislative efforts have resulted in the Dodd-Frank Act and the Volcker Rule, which aim to ensure that the risky financial practices that caused the 2008 financial crisis will not be repeated (Acharya) (Johnson). While the recent financial crisis may have occurred in 2008, the seeds of the disaster were sown in the decades...
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...Banking Act of 1933, included four provisions limiting the ability of deposit-taking institutions to trade for their own benefit. These provisions are colloquially referred to as the Glass-Steagall Act. GlassSteagall forbade commercial banks from dealing, underwriting and investing in most securities. By the late 1990s, the resolve to enforce Glass-Steagall faded, shown particularly by the Fed’s blessing of the Citicorp/Travelers Group merger. In 1999, President Clinton signed the Gramm-Leach-Bliley Act into law, effectively repealing the Glass-Steagall Act. Echoing the political landscape following the Great Depression, the aftermath of the Great Recession saw a resurgence in grassroots campaigns to reinstitute tougher regulations on banks and financial institutions. The bailouts given to many large banks fueled this public outrage, especially in the light of the million Americans losing their homes to foreclosure. A recently inaugurated Obama administration sought to prevent a reoccurrence of the financial crisis by tightening government regulation of financial institutions. This eventually manifested itself as the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act included several enhancements to bank regulation, going so far as creating a spiritual successor the to Glass-Steagall Act. The Volcker Rule, proposed by former Fed Chairman Paul Volcker, called for a separation between commercial banks and proprietary activities. He correctly identified the moral hazard...
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...FINANCIAL CRISIS OF OUR TIME WHAT HAS HAPPENED In September 2008, the Bankruptcy of Lehman Brothers and the collapse of AIG, following the demise of Bear Stern and the near collapse of Merrill Lynch triggered a financial crisis. The result was a global recession which cost the World tens of trillion of dollars, rendered 30million people unemployed and doubled the national debt of the U.S. But this crisis was not an accident. It was caused by an out of control calamitous financial industry. In the aftermath of the Great Depression, the US enjoyed a 40 year economic growth without a single financial crisis. The Financial industry was tightly regulated. Critical to these regulations was The Banking Act of 1933, known as the Glass-Steagall Act, which separated commercial banking activities from Investment banking activities, meaning Banks with consumer deposits were prevented from engaging in risky investment banking activities. Most regular banks were regular businesses and they were prohibited from speculating with depositors’ savings. Investment banks, which handled stocks and bonds trading, were small private partnerships. In the 1980’s, the financial industry exploded. The Government, with support from Economists and Financial lobbyists started a 30 year period of financial deregulation. In 1982, the Government deregulated the Savings and Loans companies allowing them to make risky investments with depositors’ money. By the end of the decade, hundreds of Savings and Loans...
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...SUBSCRIBE NOW and Get CRISIS AND LEVIATHAN FREE! Subscribe to The Independent Review and receive your FREE copy of the 25th Anniversary Edition of Crisis and Leviathan: Critical Episodes in the Growth of American Government, by Founding Editor Robert Higgs. The Independent Review is the acclaimed, interdisciplinary journal by the Independent Institute, devoted to the study of political economy and the critical analysis of government policy. Provocative, lucid, and engaging, The Independent Review’s thoroughly researched and peer-reviewed articles cover timely issues in economics, law, history, political science, philosophy, sociology and related fields. Undaunted and uncompromising, The Independent Review is the journal that is pioneering future debate! Student? Educator? Journalist? Business or civic leader? Engaged citizen? This journal is for YOU! SEE MORE AT: INDEPENDENT.ORG/TIROFFER SUBSCRIBE to the The Independent Review NOW and q Receive a FREE copy of Crisis and Leviathan OR choose one of the following books: Beyond Politics The Roots of Government Failure By Randy T. Simmons The Challenge of Liberty Classical Liberalism Today Edited by Robert Higgs and Carl Close Lessons from the Poor Triumph of the Entrepreneurial Spirit Edited by Alvaro Vargas Llosa Living Economics Yesterday, Today and Tomorrow By Peter J. Boettke q q q q q YES! Please enroll me with a subscription to The Independent Review for: q Individual Subscription: $28.95 / 1-year (4 issues)...
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...school of thought is followed, can be compared to a religion1. There are tenets, or commandments. There are different religions, from Keynes, to Marx to Milton. Without extending this analogy, it is relevant to point out that economic theories either rely on governments to participate wholeheartedly in the state of economic affairs by regulating businesses, corporations and industries, or to let the system weed out the weaker in favor of the stronger. In the United States, bitter past experience shaped the regulations surrounding businesses. The Great Depression was the first indicator that the system needed to be made more robust, which in turn led to regulations that formed the base of what our current system looks like today2. The Glass-Steagall Act (GSA) was designed to separate investment and commercial banking activities3. The Act had many detractors, with many claiming it to be an over-reaction to the financial crisis in the 1930s. It was repealed in 1999 with the establishment of the Financial Modernization Act (also known as the Gramm-Leach-Bliley Act), which “repealed all...
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...member of the Federal Reserve System, is required to maintain a reserved amount of funds on deposit with one of the district reserve banks which is used to for the Federal Reserve to issue notes to the member bank. During the Great Depression from 1929 to 1933, thousands of banks failed and prompted more reform to take place. In 1933, The Glass-Steagall Act was created which separated commercial banking from securities banking and also created the Federal Deposit Insurance Corporation (FDIC) which insures money deposited at FDIC member banks against loss up to $100,000. This insured amount by the FDIC was increased after the 2008 financial crisis in an attempt to encourage business and individuals with a high net worth to keep their money in the largest banks. The new insured amount increased temporarily to $250,000 but became permanent in 2010 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In the 1980’s, approximately 600 banks failed in the United States and many of those closed permanently. The U.S. government in 1999 created the Gramm-Leach Act which rewrote the banking laws during the 20th century which basically repealed the Glass-Steagall Act and once again allowed the merging of commercial banks, securities firms and insurance companies. The Gramm-Leach Act was a contributing factor to the financial crisis of 2008 and 2009. Banks are determined by two main categories, Federally chartered national banks and State-chartered banks...
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...Derivative triggered the financial terror Jiho Jang Warren Buffett already said the derivatives “financial weapons of mass destruction.” It’s not surprising. The derivative products have triggered the most destructive financial crisis since the stock market crash in our history. The causes of financial crisis in the late 2000s are still controversial. Some assert that it is just the financial system, and regulation failure and the other insist that resulted from the financial engineering failures. The explosive growth in derivative contracts occurred after 1999 when the Glass-Steagall Act was repealed, which allowed banks to operate as brokerage. Glass-Steagall, adopted in 1933, separated brokerages and banks to ensure banks would no longer be involved in risky transactions. And credit rating agencies were slow to downgrade the credit rating of the securities. Because the rating agencies did not disclose the downgrades in time, many investors were misled to think that securities were still safe to invest in, and it accelerated the market crisis uncontrollably. The initial intention of derivatives was to defend against risk and protect against the losses and downside. However, derivatives were the most important tools to trigger the financial market collapse. Those tools usually used to take on more risk to maximize profits and returns rather than to defend against risk and to protect against the losses. All kinds of financial products are transferred to the...
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...events then at least of something similar? To say that these questions remain to be satisfactorily answered is not the same as saying that there has been a shortage of attempts. Standard operating procedure starts by rounding up the usual suspects: unethical mortgage brokers, greedy bankers, naïve homeowners, and illinformed investors. Lists focusing less on individuals than mechanisms emphasize agency problems between brokers and banks, the originate-and-distribute model, excessive leverage and short-term funding, the perverse incentives created by executive compensation practices, conflicts of interest within the rating agencies, and permissive monetary policies. These long lists of causes lead to correspondingly long lists of reforms: regulate mortgage brokers, rating agencies, and executive compensation; force banks to keep a participation in any securities they originate; require banks to hold more capital; and revisit whether monetary policy should respond to credit booms and asset bubbles. This of course is only a very incomplete summary of a vast and rapidly-growing literature. The limitations of this standard operating procedure will be apparent. However successful it is at pinpointing the immediate causes of the crisis, it fails to identify the deeper conditions that allowed those...
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...Franklin Roosevelts presence in the white house alone was a huge relief for the American people and brought a sense of new beginnings with him. Although it was expected that Roosevelt would make changes and give Americans greater hope for the country after the Great Depression with new laws, he also knew that he had to give hope through more abstract ways to reinforce his efforts. Roosevelt started a Federal One Project allowing thousands of artists to create public art for the masses. To official begin his uprising of the American people out of the Great Depression Roosevelt began what he called the creation of the First New Deal which included, bank reform, job creation, economic regulation, and regional planning. He started with bank reform...
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...throughout the entire country, and the American people were desperately searching for change. With the election of Franklin D. Roosevelt in 1932, the idea of a solution for relief of the needy, economic recovery, and financial reform came into play. This proposal was introduced by Roosevelt as the New Deal and shook the entire nation for the hope that they were looking for. Although not all of the plans for this proposal were accomplished, it took great part in lowering the unemployment rate, it created acts and legislations that helped bring back the economy, and impacted our outlook and actions towards the environment. Roosevelt quickly took over as he began his term to work to put the New Deal into effect. In just the beginning of his time in office, he had initiated 15 big pieces of legislation. One of the first acts that he started was the Emergency Banking Relief Act of 1933. At the time, banks had been closing far and wide throughout the nation due to terrified citizens that were withdrawing all the money that they had. The Emergency Relief Act regulated banking and foreign exchange, and also reopened closed banks. This helped gain some of the Americans trust back, but not all of it. To help the people gain more confidence in their banks again, the Glass-Steagall Act was also launched which ensured individual bank accounts under the form of the Federal Deposit Insurance. Statistics show that because of these acts of legislation, bank failures went from thousands, to only 57 in...
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