Law Of Banking And Financial Institutions Benchmark - Assignment Example

Law Of Banking And Financial Institutions Benchmark 1. A banker from the original perception is a dealer in money. It refers to an individual or an institution that operates on the small amounts from a number of people who consider the amounts unproductive in their hands, and use this money in profitable investments. Banking also involves furnishing those individuals who are in need of extra money to finance their money. The nature of banking, therefore, involves working with people and their money. The profits for the banking institution are obtained from charges on holding of the money, service charges for deposits and withdrawals, as well as the interests from lending (O'Connor & Faille, 2000). When dealing with people and capital, conditions are always at stake. These conditions and the possible conflicts warrant legislations and regulations. Banking and the financial institutions in general are intensely regulated by the law. The legislation that have been set aside focus on regulating relationships between the financial institutions and its clients, the institutional securities, transaction and also regulate the tax compliance of the institutions. The need for legal help in banking is a common observation in the financial world. One section of banking that requires strict regulation is private banking. This is the part that involves personalized financial depositing of capital into a financial institution by an individual who has access to high income and therefore has no problem investing in the financial institution in large sizable assets (O'Connor & Faille, 2000). The services are, therefore, offered in more personalized terms. In this case, the possibility of entering into a contract without full information is real. In addition, there is a danger of being shortchanged in the process. The legislation, therefore, come in to secure the instability of private banking. The risk with private banking including money laundering and litigation must be controlled by the government through the Office of Comptroller of Currencies (Schooner & Taylor, 2010). 2. The instability in the US banking sector in the early years was based on two issues. First, there was a level of inexperience that covered the banking industry. The lack of experience in identifying risks and responding to them led to the ultimate vulnerability. This failure was seen as many of the banks, especially those that were started just before the great recession in 1930s failed to survive the crisis. The second issue has been the lack of proper regulation of banking activities leading to most banks undergoing loss of customers due to uncertainty. When the banking activities and transactions are not well regulated by an independent party in the transactions such as the government, there is a risk that there will be intentional or unintentional foul-play which amounts to negligence. This may lead to total or partial loss to the investors or a bank. In each case, the banking sector loses credibility. The Cyprus banks wanted to get into the Euro area immediately Cyprus joined EU in 2004 (Novotný, 2013). Although the joining of EU was for political reasons, the financial institutions sought to seize the opportunity and to gain from the union. Depending on the English legal system of accounting used in Cyprus, the banks wanted to get exposed to the bond market (Novotný, 2013). However, the global financial conditions were not favorable. In addition, the exposure to the Greek bonds made Cyprus highly vulnerable, the Euro malfunctioned and the banks went into a financial crisis. As a result of this crisis, Cyprus government pursued fiscal policies that led to the loss of confidence from the international investor and the banks also lost access to international capital markets. To rescue the banks, the bailout was requested. Currently, many investors are losing confidence in the financial institutions due to their inability to foresee the crisis and advice the depositors accordingly. They are, therefore, withdrawing their investments that might be a major blow to the financial market in the country. The possible remedies to this situation could be to use a bailout request alongside strict regulatory legislation that will protect the industry from risks and vulnerability. It would also be advisable to resist the urge to practice international banking before the local sector has been stabilized (Novotný, 2013). 3. The dual banking in the United States is implemented such that there are different levels of regulation of state banks and national banks. These banks are, therefore, chattered and managed differently giving each level a full range of autonomy in managing and operating their own affairs (O'Connor & Faille, 2000). This has the advantage of providing a decentralized system of supervision where decisions can be made at the local level and hence more specific to the specific clients’ needs. However, the challenge is that with different laws governing them, the banks have unequal powers and structures which make activities and services from the Office of Comptroller of Currencies such as funding difficult (Williams & American Bar Association, 2006). 4. Depository institutions are of four main types. First, there is the commercial bank, which makes profits from the money that is deposited by customers through investments and lending. They are owned by private investors. The second type is the investment bank, which work more or less like commercial banks in dealing with individual clients’ money, but also perform intermediary roles for institutions such as the government and large corporations. These roles include underwriting equities for IPOs and facilitating mergers (O'Connor & Faille, 2000). Compared to the commercial banks, there is lesser regulation with investment banks. The third type of depository institution is the insurance company. This is an institution that collects premiums from the subscribers and help them manage risks. Their profits depend on the assumption that even the protected will still do all they can to reduce risks and therefore there are always lesser settlements than the premiums. The last type of depository institution is the brokerage firms. They facilitate securities and shares transactions by being a mediator between the seller and the buyer and make their profits via commissions (O'Connor & Faille, 2000). 5. Depository institutions are in contact with the clients whose money runs in the institution through the banking and other client service activities. However, the bank holding companies are companies that do not engage in direct banking activities themselves, but takes control of one or more depository institutions such as banks (Heller, & Fein, 1997). The bank holding companies do not deal directly with investors or depositors. References Heller, P. B., & Fein, M. L. (1997). Federal bank holding company law. New York, NY: Law Journal Seminars-Press. Novotný, V. (2013). From reform to growth: Managing the economic crisis in Europe. Delft: Uitgeverij Eburon. O'Connor, D. E., & Faille, C. C. (2000). Basic economic principles: A guide for students. Westport, Conn: Greenwood Press. Schooner, H. M., & Taylor, M. (2010). Global bank regulation: Principles and policies. Amsterdam: Academic Press. Williams, H. C., & American Bar Association. (2006). Federal banking law and regulations: A handbook for lawyers. Chicago: American Bar Association Read More