Bank Deregulation: Friend or Foe?
Banking has changed a lot during my lifetime—for the better. The changes are partly due to technology (ATMs, online access), but also to deregulation that subjected banks to a lot more competition. What were the major deregulatory moves and how might they have contributed to the recent crisis? Before addressing those questions, a little personal history.
I got interested in money and banking at a very young age. My mother often took me along on shopping trips, explaining what money was, why we needed it in stores, and how my father got it for us. Trips to the bank were a special treat. The Cleveland Trust branch near us was an imposing affair, with a limestone façade, high ceilings, and tellers ensconced behind ornate barred windows. The architecture was intended to instill confidence, but to me it was just a magic place.
Later, my sixth-grade class operated a student branch of another bank, the Society for Savings. Twice a month our classroom was rearranged like a bank branch. Tellers (all boys, as I recall) would accept student deposits of a dime, a quarter, or sometimes a whole dollar. Assistant tellers (girls) would write the amount of the deposit in the student’s passbook, while the boys handled the cash. After closing we tallied the deposits and packed the loot—perhaps $50—into a canvas bag, and a privileged student would trundle it off to the principal’s office under the watchful eyes of two “guards.” What great lessons we learned: thrift, honesty, attention to detail!
By the time I was 14 I was earning good money shoveling snow, raking leaves, and mowing lawns. I had become something of a saving fanatic. I soon found out that the local savings and loan (S&L) offered higher interest than commercial banks, so I opened an account there. Savings passbooks seem quaint in hindsight, but mine was a treasured possession, a tangible reminder of my growing nest egg.
Not just the passbooks, but the entire banking experience of the 1950s looks quaint from today’s perspective. The banks were open from 10 to 3 five days a week, and there were no automatic teller machines, no debit cards, and only a crude form of credit card (mom’s charge-a-plate was accepted only by the downtown department stores). Those were the days of the 3-6-3 rule of banking: pay 3 percent on deposits, lend it out at 6 percent, and head for the golf course at 3 p.m.
No need to worry about competition. For one thing, potential competing banks from other counties or other states were not allowed to open branches inside Cuyahoga County. And the interest paid on savings accounts was set by government regulators. Banks and especially their S&L brethren did try to compete by offering bonuses like toasters to new account holders.
The stagflation of the 1970s blew the cozy world of banking wide open. When price inflation approached and then exceeded 10 percent, savers began to realize their passbook accounts were guaranteed losers of purchasing power. Some turned to Treasury bills, but at one point the public servants at Treasury, beset by small savers wanting to buy $1,000 T-bills, shooed them away like so many flies by simply raising the minimum purchase to $10,000. Money market mutual funds were devised and helped fill the gap. These funds were a clever innovation that let small savers participate in a pool of short-term, high-quality, market-rate instruments. Prudent management made it possible to maintain a dollar-per-share price, and check-writing privileges were soon added. Eventually this form of asset was included in the broader monetary aggregates. Savings poured out of banks into the new funds.
Regulation Q
The banks badly needed relief from the infamous Regulation Q, which capped the interest rates they could pay. Relief appeared in the form of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). Interest-rate ceilings were phased out, and for the first time in many years interest could be paid on demand deposits (checking accounts). Repeal of Regulation Q was framed as a consumer protection measure, and rightly so. Interest limits—and price controls in general—are now thoroughly discredited.
The repeal of usury laws decriminalized high-interest personal loans, which was beneficial to marginal borrowers generally. It did, however, contribute in a minor way to the expansion of unsustainable subprime mortgages.
DIDMCA included minor increases in regulation. All banks—not just those that were members of the Fed—became subject to regulation by the Federal Reserve System. The Fed could now set reserve requirements for all banks, offer them discount loans, and provide check-clearing services. Also, deposit insurance, which is a subsidy to the banks, was raised from $40,000 to $100,000 per depositor. It is a subsidy because although banks pay premiums for deposit insurance, those premiums are almost certainly lower than what private insurance companies would charge.
The Garn-St. Germain Act of 1982 soon followed. Banks were allowed to offer money market deposit accounts in competition with the money market mutual funds that had lured so many savers away. There were numerous other minor changes, but the act’s most important provision was deregulation of S&Ls. Savings and loans were bank-like institutions that had been allowed to pay slightly more on deposits but were allowed to offer only one kind of loan: home mortgages. It was this tradeoff, prompted by politicians who saw it as their job to promote homeownership, that primarily distinguished S&Ls from commercial banks. Garn-St. Germain eliminated the S&L interest-rate advantage and raised the limits on the amount of consumer lending and nonresidential real estate lending they were allowed to undertake.
S&Ls held mortgages that yielded modest returns and had many years to run, but by 1980 they were having to pay ever-higher rates to retain deposits, mostly passbook savings accounts payable almost on demand. They were caught in a classic borrow-short/lend-long squeeze. To make matters worse, most S&L managers lacked the specialized knowledge and personal connections necessary for successful commercial real estate lending. These and other factors led to the S&L crisis of the late 1980s. Had they anticipated these developments, Senators Garn and St. Germain might have phased in the changes more gradually. Overall, though, Garn-St. Germain and DIDMCA ultimately strengthened competition and fostered innovation, thereby serving consumers well.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 was passed as a cleanup measure. Little remains of this act other than the establishment of the Office of Thrift Supervision, currently targeted for abolition.
The Riegle-Neal Interstate Banking and Branching Efficiency Act took effect in 1994. By opening up interstate branch banking, this act finally caught us up with Canada, which has had large nationwide banks almost since the founding of the Dominion. There were no Canadian bank failures at all during the 1930s, when some 9,000 U.S. banks failed. With branch banking outlawed, small towns in the United States could only be served by small and often fragile local banks. This restriction was a major contributor to the two waves of U.S. bank failures during the Depression.
Nowadays we can travel across the country and see familiar bank names like Chase, Citibank, Wells Fargo, or Bank of America. Young people in particular find this no more surprising or disturbing than the ubiquity of McDonald’s or Chevron. Riegle-Neal has been an unqualified success in this regard.
Gramm-Leach-Bliley
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 takes the stage next. It repealed (for the most part) the separation of investment banking from commercial banking and insurance, as discussed in my and Jeffrey Rogers Hummel’s October Freeman article on the Glass-Steagall Act. Two minor restrictions remain: Investment banks and commercial banks must be held in separate subsidiaries, and commercial banks still cannot hold shares of corporate stock on their books.
Gramm-Leach-Bliley is widely blamed for the banking crisis of 2008–2009. But before the crisis, several of the largest investment banks had remained stand-alone institutions, and it was only after the crisis that they all acquired commercial banks, as allowed by the law. It is not clear that those which had taken advantage of Gramm-Leach-Bliley were any more to blame than those that hadn’t.
The Commodity Futures Modernization Act of 2000 was a classic example of regulatory catch-up. Sophisticated derivative securities called credit default swaps (CDS) had arisen in the markets. A CDS insures the holder of a debt security against default. Risk is thereby transferred from a risk-averse party to a risk-tolerant party at a price agreeable to both. CDS purchasers need not actually hold the reference instrument, in which case they are speculating. Though not entirely new, these derivative securities had exploded in volume as part of a trend toward more sophisticated instruments.
Regulators were at odds as to whether a CDS is a security subject to regulation by the Securities and Exchange Commission or a futures contract subject to regulation by the Commodity Futures Trading Commission. A turf war broke out. Neither side won, and credit default swaps went largely unregulated. But the presumption that regulation would have prevented problems with CDSs is dubious if one thinks, for example, of the failure of the SEC to catch Bernie Madoff even though a whistle-blower tried for years to get it to pay attention.
Reserve Obligations
The Financial Services Regulatory Relief Act of 2006 was concerned with bank reserves. These are the funds banks keep to back up their deposit obligations; they consist of so-called “vault cash” plus their reserve account at the Fed. At present banks must hold reserves amounting to approximately 10 percent of their demand deposit obligations. Although analogous to the stash you and I might keep for personal emergencies, banks cannot draw their reserves down below 10 percent, come hell or high water.
However, elimination of the 10 percent requirement would be a nonevent in today’s environment, given that most banks now choose to hold reserves substantially in excess of 10 percent. At any rate, the requirement can’t be dropped before 2012, and (in case anyone was wondering) there is no way that anticipation of its elimination had anything to do with the financial crisis. Under the act, payment of interest on reserves was originally scheduled to begin in 2011 but was moved up to 2008, as part of the TARP bailout. The original intent of this provision was to provide Fed money managers with an additional tool to shepherd short-term interest rates, but something quite different has happened instead: Payment of interest gave banks a new incentive to hold excess reserves. This incentive is at least partly responsible for an explosion of excess reserves, from about $2 billion to over $1,000 billion in the last two years.
This brief summary of recent regulatory changes has given only a hint of the bewildering array of laws, regulations, and agencies that deal with banking. Commercial banks are regulated by the Federal Reserve System, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Office of Thrift Supervision (OTS). The National Credit Union Administration is a parallel agency for credit unions, and there are also state banking regulators. Competition and rivalry among these agencies may be a good thing if you like the prospect that their squabbling makes them less effective. But the competition got a little crazy, culminating in the great chainsaw incident of 2003.
OTS had gotten oversight of S&Ls. Director James Gilleran marketed his agency as a champion of innovations such as option adjustable-rate mortgages, later to be the downfall of so many unqualified borrowers. “Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion,” he said in a 2004 speech.
The Chainsaw Incident
In the summer of 2003 leaders of the four federal agencies that oversaw the banking industry gathered to highlight the Bush administration’s commitment to reducing regulation. They posed for photographers behind a stack of papers wrapped in red tape. One held garden shears and another a bolt cutter, but Gilleran topped them all with a chainsaw! One of Gilleran’s biggest catches was the infamous Countrywide Mortgage, which chose to place itself under OTS regulation in 2007 and proceeded to generate huge volumes of unsustainable mortgages.
Is this an indictment of deregulation? It might better be called “regulatory deregulation,” which is different from genuine deregulation. When banks or any other businesses are highly regulated, their customers stop worrying about their business practices, assuming the regulators have things in hand. If regulators then begin to promote risky behavior while the public continues to believe they are enforcing prudence, problems invariably arise. Such problems would be much less likely if market discipline displaced regulation entirely—that is, scrutiny by stockholders, bondholders, customers, auditors, independent rating agencies, and of course laws punishing fraud and theft.
Overwhelmingly Beneficial
The record outlined above shows that the deregulatory actions of the last 39 years have been overwhelmingly successful. We must look elsewhere for the causes of the 2008–2009 crisis: government encouragement of risky mortgage lending, low interest rates engineered by the Fed, and to some degree one of the bank regulations that was never lifted. This was the Community Reinvestment Act (CRA) of 1977. This law forced banks to stop “discriminating” against borrowers who lived in low-income areas. In practice this meant diverting some funds away from creditworthy borrowers toward high-risk borrowers. The CRA clearly contributed to the deterioration of credit quality in mortgage lending, but no constituency was strong enough to buck the egalitarian tide and get CRA repealed.
The Dodd-Frank financial “reform” bill is now law. It requires bureaucracies to generate about 67 studies and 243 new regulations, so it’s difficult to say at this point how the new act will play out. Dodd-Frank restricts banks’ “proprietary trading” activities—a concept to be delineated by regulators and, no doubt, artfully skirted by clever bankers. The most important deregulatory reform—allowing nationwide branching—is left intact. Perhaps the act’s full effects will become apparent only when the next financial crisis hits.
Comment by Laura on 23 October 2010:
You cite the common conservative-biased misconception about CRA’s role in the subprime mortgage crisis. CRA was first implemented in 1977. It saw a dramatic increase in activity during Clinton’s administration, then died down during the first year or so of GW’s initial term. Yet, there was no significant default rate among the CRA loans during that time. Later, in 2004 Bush announced plans to weaken existing CRA regulations and removing small and mid-sized banks from the umbrella of CRA’s tougher requirements. Yet subprime lending continued to rise. Furthermore, the majority of the subprime loans which would end up in default were made by private mortgage companies and other institutions that were not required to write CRA loans. Studies reveal that CRA loans have shown no more propensity for default than their prime counterparts.
I would propose an alternate explanation. During the stagnant growth of the early-mid 2000′s, the banks found themselves in need of an infusion of capital. The combination of writing large volumes of mortgages combined with the repeal of Glass-Steagal which allowed them to make additional profits by selling the loans to be packaged into MBS. Meanwhile the GSE backing, that allowed the lenders to offload any risk, led to an indifference to adherence to underwriting protocols. Quite simply, in their rush to make as many loans as possible, they cared little about whether the borrower had the means to make the payments. Finally, they failed to consider (or ignored) that homes may have become overvalued and the bubble might burst followed by a decline in those values.
The scariest part is that despite a massive taxpayer bailout and continuing economic fallout, the same behavior is in evidence today with “foreclosure-gate”. And those in the banking industry can be heard not only blaming it on the deadbeats who don’t make their payments, but expressing an arrogant confidence that the taxpayers will once again come to their rescue. They can’t fathom a scenario in which they would be allowed to fail. They have become accustomed to an atmosphere that not only allows them to fail, but rewards them for doing so.
Comment by Joe Schmoe on 24 October 2010:
I recall reading an article (perhaps on the Freeman) outlining several statements made by the Fed, regulators, and government officials outlining their intent to encourage more mortgage loans. I distinctly remember one person actually predicting that the Fed would create a mortgage bubble, or something. A link to such an article, if it was by the Freeman, would be a perfect way to end this.
In any case, I agree the deregulation wasn’t too significant. I think the last section, however, regarding the CRA could be removed; if you’re going to lay some blame, write an article about it, don’t include it in a little snippet at the end. You have written a good defense of deregulation, but leave it at that, no?
Comment by Michael Smith on 27 October 2010:
Laura wrote:
“Furthermore, the majority of the subprime loans which would end up in default were made by private mortgage companies and other institutions that were not required to write CRA loans.”
This is quite irrelevant to the issue. The Equal Credit Opportunity Act of 1974 prohibits discrimination against any borrower by any lender of any sort — it covers everyone.
After Janet Reno’s Justice Department under Clinton filed 13 major lawsuits against lenders alleging discrimination — and bragged about it — it is highly unlikely that any major lender in the U.S. was not aware of the need to have loans to minorities on their books.
To explain the housing bubble and subsequent foreclosure crises, three things must be explained:
1) How and why were lending standards debased to the point that millions of unqualified borrowers could meet the new “standards”?
2) How were interest rates forced down low enough to entice millions of individuals into taking out loans they could never afford at more reasonable rates of interest?
3) How were interest rates then rapidly forced upward, resulting in the payments on adjustable rate mortgages increasing to the point that mass defaults resulted?
Then answer is: the Federal Reserve did it.
It was the Federal Reserve Bank of Boston that led the crusade to debase lending standards. See here for an outstanding article on how this was done:
http://www.independent.org/pdf/policy_reports/2008-10-03-trainwreck.pdf
It was also the Fed that kept interest rates at record low levels from 2003 – 2005 and the raised them rapidly in 2006, thereby triggering the foreclosures and popping the bubble.
The left is trying diligently to blame this crises on the free market. But we don’t have a free market — we are not even close to such a thing. This was a government-induced failure of the highly-regulated market — the left’s claims to the contrary notwithstanding.
For another excellent article on how the Federal Reserve creates asset bubbles, see this article:
http://www.capitalism.net/articles/A_Blog_07_09.html#Title
Comment by Michael Smith on 27 October 2010:
I would also like to address the left’s claim that “de-regulation” has left our banking system “unregulated”.
Here is a list of what are considered the key banking regulations imposed by the Federal Reserve and other Federal government departments or agencies. Note that this is not purported to be an exhaustive list, only a “key” list:
Bear in mind that each of these Regulations entails and implements dozens of additional “sub-regulations”. As an illustration, I’ll include the table of contents for the first three such regulations:
Regulation A — relates to extensions of credit by Federal Reserve Banks to depository institutions and others. It establishes rules under which Federal Reserve Banks may extend credit to depository institutions and others.
Sec. – 201.1 Authority, scope and purpose.
Sec. – 201.2 Definitions.
Sec. – 201.3 Extensions of credit generally.
Sec. – 201.4 Availability and terms of credit.
Sec. – 201.5 Limitations on availability and assessments.
Sec. – 201.51 Interest rates applicable to credit extended by a Federal Reserve Bank.
Sec. – 201.104 Eligibility of consumer loans and finance company paper.
Sec. – 201.107 Eligibility of demand paper for discount and as security for advances by Reserve Banks.
Sec. – 201.108 Obligations eligible as collateral for advances.
Sec. – 201.109 Eligibility for discount of mortgage company notes.
Sec. – 201.110 Goods held by persons employed by owner.
Regulation B — prohibits creditor practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); to the fact that all or part of the applicant’s income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The regulation also requires creditors to notify applicants of action taken on their applications; to report credit history in the names of both spouses on an account; to retain records of credit applications; to collect information about the applicant’s race and other personal characteristics in applications for certain dwelling-related loans; and to provide applicants with copies of appraisal reports used in connection with credit transactions.
Section 202.1 – Authority, scope and purpose
Section 202.2 – Definitions
Section 202.3 – Limited exceptions for certain classes of transactions
Section 202.4 – General rules
Section 202.5 – Rules concerning requests for information.
Section 202.6 – Rules concerning evaluation of applications.
Section 202.7 – Rules concerning extensions of credit.
Section 202.8 – Special purpose credit programs.
Section 202.9 – Notifications.
Section 202.10 – Furnishing of credit information.
Section 202.11 – Relation to state law.
Section 202.12 – Record retention.
Section 202.13 – Information for monitoring purposes.
Section 202.14 – Rules on providing appraisal reports.
Section 202.15 – Incentives for self-testing and self-correction.
Section 202.16 – Enforcement, penalties and liabilities.
Appendix A – Federal Enforcement Agencies
Appendix B – Model Application Forms
Appendix C – Sample Notification Forms
Appendix D – Issuance of Staff Interpretations
Supplement I to Part 202–Official Staff Interpretations
Regulation C — implements the Home Mortgage Disclosure Act, which is intended to provide the public with loan data that can be used to help determine whether financial institutions are serving the housing needs of their communities; to assist public officials in distributing public-sector investments so as to attract private investment to areas where it is needed; and to assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes. Requires certain lenders to complete Loan Application Registers to track home purchase loans, home improvement loans and refinancings.
Sec. 203.1 – Authority, purpose, and scope.
Sec. 203.2 – Definitions.
Sec. 203.3 – Exempt institutions.
Sec. 203.4 – Compilation of loan data.
Sec. 203.5 – Disclosure and reporting.
Sec. 203.6 – Enforcement.
Appendix A to Part 203–Form And Instructions for Completion of HMDA Loan/Application Register
Appendix B to Part 203–Form And Instructions for Data Collection on Ethnicity, Race, And Sex
Reg C Commentary
Regulation D — relates to reserves that depository institutions are required to maintain. It also provides guidance on NOW account eligibility, MMDA and savings account transfer restrictions, and early withdrawal penalties.
Sec. 204.1 – Authority, purpose and scope.
Sec. 204.2 – Definitions.
Sec. 204.3 – Reporting and location
Sec. 204.4 – Computation of Required Reserves.
Sec. 204.5 – Maintenance of Required Reserves.
Sec. 204.6 – Charges for Reserve Deficiencies.
Sec. 204.7 – Supplemental reserve requirement.
Sec. 204.8 – International banking facilities.
Sec. 204.9 – Emergency Reserve Requirement.
Sec. 204.10 – Payment of interest on balances.
Sec. 204.121 – Bankers’ banks.
Sec. 204.122 – Secondary market activities of international banking facilities.
Sec. 204.123 – Sale of Federal funds by investment companies or trusts in which the entire beneficial interest is held exclusively by depository institutions.
Sec. 204.124 – Repurchase agreement involving shares of a money market mutual fund whose portfolio consists wholly of United States Treasury and Federal agency securities.
Sec. 204.125 – Foreign, international, and supranational entities referred to in Secs. 204.2(c)(1)(iv)(E) and 204.8(a)(2)(i)(B)(5).
Sec. 204.126 – Depository institution participation in “Federal funds” market.
Sec. 204.127 – Nondepository participation in “Federal funds” market.
Sec. 204.128 – Deposits at foreign branches guaranteed by domestic office of a depository institution.
Sec. 204.130 – Eligibility for NOW Accounts.
Sec. 204.131 – Participation by a depository institution in the secondary market for its own time deposits.
Sec. 204.132 – Treatment of Loan Strip Participations.
Sec. 204.133 – Multiple savings deposits treated as a transaction account.
Sec. 204.134 – Linked time deposits and transaction accounts.
Sec. 204.135 – Shifting funds between depository institutions to make use of the low reserve tranche.
Sec. 204.136 – Treatment of trust overdrafts for reserve requirement reporting purposes.
Regulation E — protects individual consumers engaging in electronic fund transfers and.carries out the purposes of the Electronic Fund Transfer Act, which establishes the basic rights, liabilities, and responsibilities of EFT consumers of financial institutions that offer these services.
Regulation F — designed to limit the risks that the failure of a depository institution would pose to other insured depository institutions. Provides requirements relating to interbank liabilities.
Regulation G — Disclosure and Reporting of CRA-Related Agreements
Regulation H — provides guidance on a variety of matters relating to state-chartered member banks, from real estate lending standards to standards for safety and soundness.
Regulation I — implements the provisions of the Federal Reserve Act relating to the issuance and cancellation of Federal Reserve Bank stock upon becoming or ceasing to be a member bank, or upon changes in the capital and surplus of a member bank, of the Federal Reserve System.
Regulation J — governs the collection of checks and other cash and noncash items and the handling of returned checks by Federal Reserve Banks and provides rules for collecting and returning items and settling balances.
Regulation K — sets out rules governing the international and foreign activities of U.S. banking organizations, including procedures for establishing foreign branches and Edge corporations to engage in international banking and for investments in foreign organizations.
Regulation L — implements the Depository Institution Management Interlocks Act to foster competition by generally prohibiting a management official from serving two nonaffiliated depository organizations in situations where the management interlock likely would have an anticompetitive effect.
Regulation M — implements the consumer leasing provisions of the Truth in Lending Act.
Regulation N — governs relationships and transactions between Federal Reserve Banks and foreign banks or bankers or groups of foreign banks, or bankers, or a foreign State.
Regulation O — governs extensions of credit to insiders, which includes directors, executive officers, and principal shareholders of a bank and its affiliates. It includes special restrictions on loans to executive officers.
Regulation P — requires a financial institution to provide notice to customers about its privacy policies and practices; describes the conditions under which a financial institution may disclose nonpublic personal information about consumers to nonaffiliated third parties; and provides a method for consumers to prevent a financial institution from disclosing that information to most nonaffiliated third parties by “opting out” of that disclosure.
Regulation Q — provides guidelines and restrictions relating to interest on deposits and advertising.
Regulation R — This regulation was returned to the list of Federal Reserve Board regulations on September 28, 2007. Its title is “Exceptions for Banks from the Definition of Broker in the Securities Exchange Act of 1934″.
Regulation S — establishes the rates and conditions for reimbursement of reasonably necessary costs directly incurred by financial institutions in assembling or providing customer financial records to a government authority pursuant to the Right to Financial Privacy Act.
Regulation T — regulate extensions of credit by brokers and dealers. It imposes, among other obligations, initial margin requirements and payment rules on certain securities transactions.
Regulation U — imposes credit restrictions upon persons other than brokers or dealers that extend credit for the purpose of buying or carrying margin stock if the credit is secured directly or indirectly by margin stock.
Regulation V — Implements portions of the Fair Credit Reporting Act (FCRA). Includes model notices that can be used to notify customers either before or immediately following the delivery of negative information.
Regulation W — implements Sections 23A and 23B of the Federal Reserve Act which govern most transactions between banks and their affiliates. The term “banks” includes all national banks, as well as insured state member and nonmember banks and, for certain purposes, US branches and agencies of foreign banks.
Regulation Y — regulates the acquisition of control of banks by companies and individuals; defines and regulates the nonbanking activities in which bank holding companies and foreign banking organizations with United States operations may engage; and sets forth the procedures for securing approval for these transactions and activities.
Regulation Z — designed to help consumers “comparison shop” for credit by requiring disclosures about its terms and cost. The regulation gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. The regulation requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer’s dwelling. It also imposes limitations on certain home equity and mortgages.
Regulation AA — establishes consumer complaint procedures; defines unfair or deceptive acts or practices of banks in connection with extensions of credit to consumers. Prohibits certain practices, such as taking a non-purchase money security interest in household goods.
Regulation BB — implements the Community Reinvestment Act.
Regulation CC — contains rules regarding the duty of banks to make funds deposited into accounts available for withdrawal, including availability schedules plus rules regarding exceptions to the schedules, disclosure of funds availability policies, payment of interest, and liability. Also contains rules to expedite the collection and return of checks by banks, including the direct return of checks, the manner in which the paying bank and returning banks must return checks to the depositary bank, notification of nonpayment by the paying bank, indorsement and presentment of checks, same-day settlement for certain checks, and other matters.
Regulation DD — implements the Truth in Savings Act to enable consumers to make informed decisions about deposit accounts at depository institutions. Requires depository institutions to provide disclosures so that consumers can make meaningful comparisons among depository institutions.
Regulation EE — expands the FDIC Improvement Act of 1991 definition of a “financial institution” for financial market participants who avail themselves of the netting provisions of the Act regarding contracts in which the parties agree to pay or receive the net, rather than the gross, payment due.
Regulation FF — extends the rules on obtaining and using medical information in connection with credit to creditors other than those regulated by the OCC, FRB, FDIC, OTS and NCUA.
Regulation GG — implements the Unlawful Interstate Gambling Enforcement Act. Requires participants in designated payment systems to establish and implement policies and procedures reasonably designed to prevent or prohibit restricted transactions, such as by identifying and blocking such transactions.
HUD’s Reg X — implements the provisions of the Real Estate Settlement Procedures Act (RESPA).
Go here to see the list and link to any of the specific regulations to see the details behind them:
http://www.bankersonline.com/abcsoup/abcsoup.html
Only the delusional can believe that banking has been deregulated or that it bears any resemblance whatsoever to a “free market”.
Comment by LG on 1 November 2010:
If you follow the arguments, explicit or implied, above, then why not pursue deregulation of automobile safety, for example? A few bloody car crashes on your street should be all that anyone needs to teach them that wearing a seat belt is the most rational choice. So too with banks. Let the individual banks develop their own standards and practices, never mind how well those practices serve the consumer – consumers will decide which are best. If, along the way, a few banks fail, a few local economies melt down because of bad investments … well, all for the best as it will serve to educate the rest of us to be more vigilant consumers.
The problem with that, of course, is that we live in a civil society and the deliberate pursuit of policies that are based on allowing pain, death, and suffering for their educational and elucidative value has been loathsome and unacceptable for the vast majority of humans throughout our history.
The question is not, and cannot be, whether to regulate or not regulate. The only question is what are the right regulations to encourage a market that is truly free – i.e. open, fair, not rife with croneyism or backroom dealing, and not conducive to exploiting the consumer. I wait with ‘bated breath for anti-regulation partisans – here and elsewhere – to start framing the argument in terms of sensible, minimal regulation. When I hear that, you’ve got me (and most of middle America) on your side.