U'S' Financial Environment

1
U.S. Financial Environment

• Chapter 3

2
Commercial Banks

• Demand Deposit Accounts
• Transaction Balances
• Compensating Balances
• Correspondent Balance
• Time Deposits
• Negotiable CDs
• 1,000,000 blocks
• Retail CDs

3
Commercial Banks

• Other Interest Bearing Accounts
• Money Market Deposit Accts.
• Unregulated Rate of Interest
• Limited Check Writing and Electronic Withdrawals
• Negotiable Order of Withdrawal (NOW)
• Unregulated Rate of Interest
• Unlimited Check Writing
• No Corporations Allowed

4
Commercial Banks

• Credit Services
• Investment Banking Services
• Commercial Paper
• Loan Sales
• Private Placements
• Payment and Collection Services

5
Commercial Banks

• Trade Services
• Commercial Letters of Credit
• Letter of Credit Confirmation
• Documentary Collections
• Bankers Acceptances

6
Other Financial Institutions

• Investment Banking Brokerage Firms
• Thrift Institutions
• Credit Unions
• Consumer Finance Companies

7
Regulatory Agencies

• Federal Reserve System
• Supervision
• Bank Holding Companies
• State Chartered Banks that are Fed. Members
• Edge Act Banks
• Monetary Policy

8
Regulatory Agencies

• Federal Reserve System
• Banking Services
• Check Clearing
• Wire Transfers
• Automated Clearing House System
• Fiscal Agency
• Banker for the Federal Government
• Consumer Protection

9
Regulatory Agencies

• Office of the Comptroller of the Currency (OCC)
• Regulates and Supervises National Banks
• Office of Thrift Supervision
• Federal Deposit Insurance Corporation (FDIC)

10
Regulatory Agencies

• Office of Foreign Assets Control (OFAC)
• Office of the Treasury Department
• Administers and enforces economic and trade
  sanctions.
• OFAC has authority to impose controls on
  financial transactions and freeze foreign asset
  under U.S. jurisdiction.

11
Federal Legislation

• Edge Act (1918)
• Permitted U.S. Banks to invest in corp. that
  engage in international banking and finance
• Permitted that establishment of subsidiaries
• Import and Export Financing
• Foreign Exchange
• Letters of Credit

12
Federal Legislation

• McFadden Act (1927)
• Prohibited banks from accepting deposits across
  state lines
• Prohibited branching across state lines unless
  approved by the state governments

13
Federal Legislation

• Glass-Steagall Act (1933)
• Prohibited commercial banks from securities
  underwriting
• Required Fed to establish interest rate ceilings
  on all accounts
• Created the FDIC

14
Federal Legislation

• Community Reinvestment Act (CRA) (1977/1995)
• Enacted by Congress in 1977 and implemented by
  Regulation BB. (Reg BB revised in 1995)
• Encourages depository institutions to help meet
  the credit needs of the communities in which they
  operate.

15
Federal Legislation

• Electronic Funds Transfer Act (1978)
• Rights and Responsibilities of individuals using
  EFT services other than wire transfers
• Limited Liability for Unauthorized Transactions
• Fed Reg E

16
Federal Legislation

• Depository Institutions Deregulation and Monetary
  Control Act (1980)
• Mandated the Fed to reduce and/or price payment
  system float.
• Priced previously free Fed services.
• Permitted banks to offer NOW accounts

17
Federal Legislation

• Expedited Funds Availability Act (1988)
• Defined funds withdrawal time periods
• Established return procedures
• Fed Regulation CC

18
Federal Legislation

• Federal Deposit Insurance Corporation Improvement
  Act (1991)
• Required the FDIC to change deposit insurance
  premiums from a flat fee basis to a risk-adjusted
  basis

19
Federal Legislation

• Interstate Banking and Branching Efficiency Act
  (1994)
• Allowed bank mergers across state lines beginning
  June 1997
• Allowed banks to establish new branches if the
  host state passes a law expressly permitting such
  branches

20
Federal Legislation

• Gramm-Leach-Bliley Act (1999)
• Permitted the creation of financial holding
  companies (FHCs)
• FHCs can engage in any activity considered
  financial in nature.
• Allowed easier entry by foreign banks into the
  U.S. financial services market.
• Fed is the primary regulator of FHCs
• Barred a bank holding company from merging with
  an insurance or securities firm if any of its
  banks earned a less than satisfactory CRA rating.

21
Federal Legislation

• Electronic Signatures in Global and National
  Commerce Act (2000)
• Gave digital signatures the same effect as ink
  signatures
• Ensured the legal certainty of e-commerce
  transactions and provided a measure of confidence
  in the enforceability of electronic transactions.

22
Federal Reserve Reg.

• Reg D
• Uniform reserve requirements for all depository
  institutions
• Reg E
• Consumer related EFT
• Reg J
• Check collection and settlement

23
Federal Reserve Reg

• Reg Q
• Prohibits depository institutions from paying
  interest on corporate demand deposits
• Reg CC
• Rules to speed the collection and return of
  checks
• Endorsement standards

24
Uniform Commercial Code

• Article 3 - Negotiable Instruments
• Avoidance of inadvertent accord and satisfaction
  if payee returns the item within 90 days
• Banks failure to examine checks for forged
  signatures
• Ordinary care

25
Uniform Commercial Code

• Article 4 - Bank Deposits and Collections
• When a bank may charge a customers account
• Right to stop payment
• Stale date items (6 months)
• Companys obligation to examine statements and
  report unauthorized signatures or alterations (30
  days)

26
Uniform Commercial Code

• Article 4A - Funds Transfers
• Security Procedures
• Consequential Damages
• Bank not responsible for consequential damages
  beyond the loss of funds
• Bank is responsible for interest lost or
  incidental expenses

27
Uniform Commercial Code

• UCC 5 - Letters of Credit
• Issuers obligation to applicant
• Examine documents
• Make payment