Federal Reserve regulations of banking - Admission/Application Essay Example

Unlike some other private industries the banking sector is to a myriad of governmental regulations and other regulatory agencies that provideoversight of its day to day operations. Despite being one of the most regulated industries in the United States there is still a need to reform the banking industry as whole and instill tougher regulatory and operational standards to the industry as a whole (Federalreserve, 2012). The 2008 global recession is a clear example of what can happen when corruption and greed takes over the banking industry.

The global "housing bubble" which was directly caused by the lack of oversight over the myriad of overly complex banking practices and the obviously collusion and clearly illegal financial activities and lending practices practiced by many banking, credit rating agencies and mortgage institutions. In the peak of the housing bubble by the early 2000s the historically stringent credit requirement for house mortgages became so lax, that almost anybody could buy a house for no money down, without proof of income, assets or even a good credit rating.

Since the unregulated housing lending market became so competitive, this type of sub-prime mortgage became the de-facto standard for most of the housing loans at the time. Even though there was no guarantee the debtors could actually pay their loans the mortgage rating agencies such as Standard & Poor’s willingly classified the mortgage backed securities created b with these sub-Prime loans as AAA grade investment vehicles, instead of the reality of these securities being closer to junk status.

Truth be told the breadth of governmental regulations and oversight that apply to financial institutions encompasses all their financial, lending, and investment activities of the institution. Good effective oversight of banking institutions requires the right regulations and controls to be in place in order to be effective in fulfilling their mission (Santomero, 2002). One clear example of predatory banking can be seen in the excessive overdraft fees imposed by many banking institutions. In many banks the electronic debit system is set-up where overdrafts are allowed in many debit cards and the customer is not notified before the transaction if it goes over their account balance.

Therefore most of these overdrafts go unnoticed by most customers since the customer might have miscalculated their account balance by a small amount and the error goes unnoticed. Furthermore there is no limit at how many overdraft fees can be charged to a customer in a single day, maximum total allowed or how much to charge per incident. Even new overdraft regulations that the Fed recently made into rule legitimizes the reality of abusive bank service fees, but does not provide any substantial protection from this predatory practices.

Even after instilling the new rule, today, the average overdraft fee is $17 per incident (Sloan, 2009). Banks are always using their financial prowess to lobby against banking regulations and a free market, but we can clearly still see the real consequences of lack of governmental oversight over banking activities. When the Glass Steagall Act was repealed in 1999 it effectively removed the separation between Wall Street and the banking industry, therefore opening up the window for the type of ludicrous lending and investing practices of the banking industry as a whole.

References Federalreserve.com (2012). Regulations. Retrieved January 6, 2012 from http://www.federalreserve.gov/bankinforeg/reglisting.htm Santomero, A.M. (2002). Does bank regulation help bank customers? Business Review – Federal Reserve Bank of Philadelphia, 1-6. Retrieved November, 2010 from ProQuest database. Sloan, S. (2009). New Fed Overdraft Rule Unlikely to Curtail Issuer, Group Says (Debit News). Retrieved January 6, 2012 from http://www.highbeam.com/doc/1G1-212442177.html