Finance Final - Laws & Rules

Legal Lending Limit

Banks are prohibited from lending more than 15% of their equity capital to a single borrower

Glass-Steagall Act1933

Separated corporate and investment banking and created the FDIC

National Housing Act 1934

Created The FSLIC which provides deposit insurance for savings institutions

Basel Accords

Created international banking standards

Basel I

Established in 1988 - banks have to hold at least 8% of their risk weighted assets (RWA) in capital reserves

CAMELS

Used to evaluate banks

• Capital Adequacy

• Asset quality

• Management quality

• Earnings quality

• Liquidity

• Sensitivity to market risk

Liquidity Coverage Ratio

Requires banks to maintain enough highly liquid assets in case of a “highly liquid crisis” for a 30 day period

Net stable funding ratio

Requires banks to maintain enough stable funding in proportion to long-term assets

Structural Policy

Build resilience at any point in the business cycle

Cyclical Policy

Build resilience in anticipation of an economic downturn

Consumer Protection Act 1969

Required lenders to release important information such as the APR when making a loan

Fair Credit Billing Act 1974

Amended Consumer Protection Act

Equal Opportunity Act 1974

Prohibited lending discrimination based on race, gender, ehtnicity, sexuality,ethnicity

Community Reinvestment Act 1977

Created to stop redlining

Consumer Financial Protection Bureau

Created from Dodd Frank to protect consumers across all financial sectors

Gramm-Leach-Biley Act 1999

Repealed Glass-Steagall Act

Bank Holding Act 1956

Restricted acquisitions of banks by commercial firms

-GLB relaxed it a bit

Riegle Neal 1984

Released restrictions of interstate banking across state lines

Dodd Frank 2010

One of the largest financial reforms ever

• Established the CFPB

• Increased FDIC level to $250,000

• Issued Orderly Liquidation Authority Provisions (OLAP)

• Created Financial Stability Oversight Council (FSOC)

• Made derivatives trading more monitored

• Established Volcker Rule

Volcker Rule

Banks could not invest their own money in risky assets such as hedge funds and private equity to make a profit (controversial)