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Bank Regulation - Coggle Diagram
Bank Regulation
Key Concept
Why Bank Regulation Matters:
-Protects depositors and ensures financial system stability.
-Deregulation allowed banks more flexibility but increased risk-taking, contributing to the 2008-2009 credit crisis.
U.S Regulatory Structure
-Dual Banking System:
-Federal(e.g. Comptroller of the Currency (FDIC)and state regulatory systems
-National banks are Federal Reserve members, state banks can opt-in
-Banks can be independent or part of bank holding companies (BHCs)
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Capital Requirements
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Basel Accords:
-Basel I (1988) : Uniform risk-weighted capital standards
-Basel II : Improved risk measures; added operational risk considerations
-Basel III : Higher Tier I capital ( 6% minimum) and better liquidity requirements.
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Monitoring Banks
CAMELS Ratings:
-Criteria: Capital. Asset Quality, Management, Earnings, Liquidity, Sensitivity
-Scores: 1(outstanding) to 5 (very poor)
-Helps identify problem banks and decide on corrective actions
Corrective Measures
-Regulators may require capital boosts, expansion delays, or leadership changes
-FDIC reimbursses depositors and liquidates failng banks when necessary
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Global Regulation
-Systems vary by country, influencing competitive advantages
-Basel III provides uniform guidelines for capital and liquidity requirements