Regulation in the Banking Business and Its
Effects
Banks and bank-like financial institutions operating within the United States
and within most other countries must deal with extensive regulation in the form
of rules and laws enforced by federal and state agencies. These regulations
cover and monitor all areas of their operations, service offerings, credit
quality and quantity, capital position, and the manner in which they grow and
expand their facilities. This regulatory climate is primarily designed to protect
the public interest, to encourage savings and investment by establishing an
environment of economic soundness and stability, and to provide the public
adequate financial information and credit without discrimination.
Additionally, the actions of banks can have effects which reach far into the
structure of an economy: they have the power to create money by making loans
and investment through extending credit; they provide loans that support
consumption and investment spending; and they have long had a functional
involvement with government through collecting taxes, dispensing government
payments and other operations which closely tie them into the economic climate
and policy-making. Cushman, p. 133).
In the United States,
banks are regulated through a dual banking system; they are governed at both
the state and federal level. This was designed to give the states significant
control over banks, and also to ensure that banks would be treated fairly as
they expanded their operations across state lines.
