GROUP 2

NGUYN TH HNH

DEREGULATION

L HUNH THANH TRC

DEREGULATION
ON FINANCIAL SYSTEM
BANK SAFETY
RESERVE REQUIREMENT
OPEN MARKET OPERATION

T QUNH HNG

CLEARING CHECKS

DEREGULATION

In 1929, the Great Depression occurred.

Bank

The Great
Depression

1933 1970s: Banking was highly regulated.

These regulations created a fragmented

financial system.
Commercial
banks

offered checking services,

lent deposits to businesses

Thrifts

offered saving accounts and

lent these funds for home
mortgages

Investment
banks

helped businesses
raise funds through
the sale of stock

Others

insurance and real estate

Specialized
institutions

In 1970s, inflation began.

Investors pulled money out of banks and
thrifts.

Interest rate

Limited service banking discovered legal loopholes.

They did not follow the regulations.

The government deregulated the banking

system.

The lines between the financial institutions

were blurring.

Commercial
banks

Others

Thrifts

Investment
banks

Deregulation on Financial System

Competitive Interest
Rate

Profit-oriented
management

DEREGULATION

Problem Loans

Regional Banking

Free to pay interest rates

=> Competitive interest rates

1,Competitive Interest Rates

Thrifts: old, long-term fixed-rated mortgages => (8%) + (4%) = (-4%)

Bank: short + long-term loans => enough funds to

lend

Solution:
+ Allow thrifts to offer services of variable-rate
mortgages
+ Allow credit card and commercial lending

2. Problem Loans
To maximize profits, bankers scramble to find borrowers

Fierce
competition

FEDERAL
bailout to
save banks

Banks went
bankrupt

Large corporations
(safest) reduced shorttermed debt (< 1yr)

Banks lent
money to
riskier loans

3. Profit-oriented management

Goal: to cut cost and raise revenues

-Indirect approach: dismissing staff, hiring part-timers,
automating, close inefficient branches, concentrating
services
-Direct approach: earn from each customer
Rich customers: courting by providing best
service (waiting time, private parties, discount.)
Small accounts: unenthusiastic (charging high for
low balance , poor service,)

3. Charging fees for traditional services

THROUGH

Charges on transactions, low balance passbook, credit

cards, bounced check, even checking accounts

4. The float
Banks collect money

Customers access
to money

Banks gain interests (float)

Checks clearing delays: + $3mil dollars for
banks/ DAY in float
Bad checks: -$3mil/MONTH

CLIP

4. Regional Banking

Banks try to expand geographically

1985, Supreme Court allows banks to BAND TOGETHER
Regional Banking zone
Mid-size bank take over little banks=>MERGE TOGETHER =>
1/3 banks will be merged by 1990 => full interstate
banking

BANK SAFETY

The Federal Deposit Insurance Corporation

(FDIC)

The Federal Savings And Loan Insurance

Corporation (FSLIC)

The National Credit Union Insurance(NCUI)

The Federal Deposit Insurance Corporation

(FDIC)

1) DATE OF ESTABLISHMENT
2) MISSIONS
3) FUNCTIONING THEORY

1. DATE OF ESTABLISHMENT

- Banking Crisis in from 1920s to 1930s

- 1934

2. MISSIONS

THE ECONOMY
AND THE FINANCIAL
SYSTEM

The effects of
bankruptcy

FDIC
DEPOSITORS

The risks

3. FUNCTIONING THEORY

X BANK

Y BANK

Z BANK

BANK

MEMBE
RS A=
MONEY
PROVID
ERS

FDIC

2.PURCHASE
4.
BRIDGE
3.
DEPOSIT
&
1. FINANCIAL
ASSUMPTION
PAY-OFF
BANK
SUPPORT
AGREEMENT

X BANK

The Federal Savings And Loan Insurance

Corporation (FSLIC)

1) WHAT THE FEDERAL RESERVE SYSTEM IS

2) WHAT ITS MISSIONS ARE
3) WHAT ITS FUNCTIONS ARE

THE CONGRESS

WHAT IS THE
FEDERAL
RESERVE
SYSTEM ?

REPORT

FED

BOARD
OF
GOVERNORS (7
MEMBERS)

12 REGIONAL
BANKS

LOCAL BANKS

THE GOVERNMENT

CHAIRPERSON

CHAIRPERSONS

2. MISSIONS

3. FUNCTIONING THEORY

A , REGULATING THE MONEY SUPPLY

RISING
TAX

BORROWING
FROM
THE PUBLIC

Reserve requirements

Percentage of a banks deposits that must be kept

on hand.

ALLPPT.com _ Free PowerPoint Templates, Diagrams a

The discount rate

Interest rate charged by the Federal Reserve on

loans to member banks

OPEN MARKET OPERATION

What is OPEN MARKET OPERATION

(OMO)?
Open market operation is a monetary policy to
ol used by the Fed to increase or decrease mon
ey supply by buying and selling government bo
nds in the open market.

How it works
To decrease the money sup
ply
The Fed sells government
bonds to the public and to
banks.

To increase the money supply

The Fed buys back its bond
s.

SELECTIVE CREDIT CONTROLS

What is SELECTIVE CREDIT CONTR

OLS (SCC)?
Ability of the Federal Reserve System (FR
S) to set credit terms for various kind of l
oans.

For example: Margin requirements can b

e altered by the FRS to affect the trading
of securities in the stock market.

The Federal Reserves functio

n:
Regulating The Money Supply

Supplying Currency

Clearing checks

KEEP THE FINANCIAL SYSTEM RUNNING

SMOOTHLY

SUPPLYING MONEY
money supply:
+ thecash (paper money, coins)
+ checks
+ savings
Supply the adequate amounts of
currency.

CLEARING CHECKS
In 1985, 12 Federal Reserve banks cleared 40
bilion checks
( interbank transaction of $50 trillion)
Use the Feds check clearing service to clear
checks drawn
on banks outside their Federal Reserve districts

 Living in TexasTX Bank

Vacation in
New York
Pay by check

High-value
check

TX bank authorizes
TX Fed deduct
the amount of check
from its deposit

The store
deposits check
in its account
at NY Bank

NY Bank deposits
check for credit in
its account at Fed
of NY

NY Fed sends
check to
TX Fed for
collection

TX Fed forwards check

to TX bank- deduces
the amount of check
from her bank account

TX Bank pays
NY Bank by payment
from its share in
ISF

NY Bank credits the

deposit account of
stores bank-credits
stores account

TX Texas
NY New York
ISF Interdistrict Settlement Fund

 Not all checks are sent to Fed for

clearance
Many rural banks pay larger banks to
perform this service
Transactions about banks are
handled and reported to Fed
charges and credits the accounts

A Bank

$400

B Bank

B Bank

$500

A Bank

Fed
$100
Checks written by A Bank and B Bank are deposited
in banks
all over the district
Debits and credits from banks in the district must
be added up
before amounts can be added to or subtracted from A
and Bs
accounts with their Federal Reserve district bank