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Copyright © 2002 Pearson Education, Inc. Slide 15-3 Pattern of Regulation First stage: crisis in the banking industry. Second stage: government steps in to end the crisis through regulation. Third stage: response by the financial system. Fourth stage: regulatory response.
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Copyright © 2002 Pearson Education, Inc. Slide 15-1
Copyright © 2002 Pearson Education, Inc. Slide 15-2
Chapter 15
Banking Regulation: Crisis and Response
Copyright © 2002 Pearson Education, Inc. Slide 15-3
Pattern of Regulation
First stage: crisis in the banking industry. Second stage: government steps in to end
the crisis through regulation. Third stage: response by the financial
system. Fourth stage: regulatory response.
Copyright © 2002 Pearson Education, Inc. Slide 15-4
Figure 15.1 Lender of Last Resort
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Anticompetitive Bank Regulation
The federal government sought banking stability by limiting competition.
Anticompetitive regulations created profit incentives for unregulated institutions.
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Figure 15.2 Interest Rate Ceilings
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Figure 15.3 Deposit Insurance
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Proposals for Regulatory Reform
Reduce the level of deposit insurance coverage. Narrow banking: insuring deposits in safe
assets. Deposit insurance can be provided by private
insurance companies. Risk-based pricing of deposit insurance Market-value accounting
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Lessons from Banking Regulation for Institutions
Distinction between banks and insurance companies for regulatory purposes may be outdated.
Problems resulting from deposit insurance protection also apply to pension funds.
