FINA3030 Management of Financial Institutions

Course Code: FINA3030
Course Title: Management of Financial Institutions
Date: January 7th

This is the second class of this semester and the first major course. In addition, since the lecturer of this course covers a variety of topics, I decided to record this lecture and listen to it later back in the dorm. So here we go:

Before going into the core of this course, to understand the history of financial institutions, Elena introduced us to this website:
http://www.federalreservehistory.org

Also, Glass Steagall Act was stressed as a critical charter of the banking history:
Glass Steagall Act
http://www.investopedia.com/terms/g/glass_steagall_act.asp
It is established in 1933 to ban commercial banks from involving investment banks business. It is abolished in 1999 for it is not possible for commercial bank to simply take deposits without investing.


Chapter 1: Why Are Financial Institutions Special?
Functions And Special Role In Financial System
Economies of scale (reduces information costs)
More liquidity
Less price risk
Functions: Brokers and Asset Transformers
Regulation
Protect ultimate sources and users of savings
How:
Diversification
Minimum Capital Requirements (TARP, Capital Purchase Program)
Guaranty Funds (DIF, SIPC)
Monitoring and Surveillance
Specialness
Monetary Policy Regulation: Reserve requirements facilitate transmission of monetary policy
Credit Allocation Regulation: Supports socially important sectors (QTL, Usury Laws, Regulation Q)
Consumer Protection (CRA, HMDA, Consumer Financial Protection Agency)
Investor Protection (Securities Acts of 1933, 1934, Investment Company Act of 1940)
Crisis
Background:
Decline in share of depository institutions and insurance companies, increases in investment companies, net regulatory burden imposed on depository financial institutions (Financial Service Modernisation Act), Financial services holding companies, housing bubble
Financial Crisis:
AIG bailout
Citigroup needed government support
Chrysler and GM declared bankruptcy
Unemployment in excess of 10%
Bear Stearns funds filed for bankruptcy
Lehman Brothers failure
Solutions:
Federal Reserve infused 180 billion
700 billion Troubled Asset Relief Program
827 billion stimulus program

Regulators of the U.S. financial institutions:

FDIC: Federal Deposit Insurance Corporation
Insuring deposits, examining and supervising financial institutions for safety and soundness and consumer protection and managing receiverships.
https://www.fdic.gov/

SIPC: Securities Investor Protection Corporation
SIPC protects customers if their brokerage firm that are members of SIPC fails.
http://www.sipc.org/

OCC: Office Of The Comptroller Of The Currency
An independent bureau within the United States Department of the Treasury serving to charter, regulate, and supervise all national banks and thrift institutions and the federal branches and agencies of foreign banks in the United States.
http://www.occ.gov/

FFIEC: Federal Financial Institution Examination Council
Formal interagency body of the United States government made up of FRB, FDIC, NCUA,OCC and CFOB empowered to prescribe uniform principles, standards and report forms.
http://www.ffiec.gov/

SEC: U.S. Securities and Exchange Commission
Protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation
http://www.sec.gov/