EUs Banking Reform - Research Paper Example

The paper "EU’s Banking Reform " is a great example of a research paper on finance and accounting. During President Roosevelt’s New Deal period in 1933, two important legislations namely the Glass-Steagall Act (GSA) & the Securities Act of 1933 were legislated. These acts paved the way for the introduction of an omnipresent regulatory scheme for the securities public offering and thereby restricting commercial banks from dealing and underwriting those securities. These acts offered a substantial, costly prudential regulation.

The administration and regulations of security firms are constructed around the dissemination of risk, registration, and the inhibition and the prosecution of insider trading and other kinds of security-related frauds. The above two acts introduced two different regulatory systems thereby differentiating between the customary activities engaged by commercial banks and innovative services rendered by the modern investment banks. However, when a bank functions in a dual capacity as both a commercial and investment bank, it would be really problematic to know about their disguised activities due to cut-throat competition, innovation through financial engineering, and technological advancements in mixture with judicial interpretations and permissive agency.

One of the main advantages of being a bank despite the fact of the subject to more rigorous regulations is availing the facility what is called a “ federal safety net”, which offers safety under the “Federal Deposit Insurance Corporation “ (FDIC’s) deposit insurance. , the Federal Reserve’s payment system and the Federal Reserve’s discount window lending facility. In the aftermath of the subprime mortgage crisis of 2008, there have many red alerts to reappraise the activities that should be permissible for commercial banks in the background of the fact that they receive benefits from the government through access to the Federal safety net.

Some critics raised their voices to re-examine the provisions of the GSA that introduced an affiliation bar between securities firms and banks, which were annulled by the Gramm--Bliley Act (GLBA) in 1999. (Carpenter 2011: 1). Past history offers a significant lesson in terms of how the banking sector might evolve.