Regulation of the Industry
August 16, 2009 – 1:31 amSeveral laws were introduced to regulate the industry, usually in response to failures of the banking system. Some of the most important that are responsible for determining today’s banking environment are described in the following subsections.
Federal Reserve Act of 1913. The 1864 National Bank Act was the first to attempt to regulate the industry by establishing a national banking system and the chartering of national banks. Unfortunately, widespread bank failures and panics continued until Congress adopted the Federal Reserve Act in 1913. The 1913 Act established the Federal Reserve System as the central bank of the United States. The purpose of the Fed was to provide a stable currency and to improve supervision of banking.
The Securities Laws of 1933, 1934 and 1940. In the wake of the Great Depression and recognition of the need to bring supervision and regulation to the securities industry, these laws established the Securities and Exchange Commission (SEC), with powers to oversee and govern the issuance of securities.
Leveling the Playing Field
For many years, foreign banks operating in the United States were not subject to the same controls and regulations as domestic banks. Several laws have been introduced both to subject foreign banks to U.S. regulatory supervision and to provide U.S. banks with a more equal competitive footing. The most important act for cash managers is the Edge Act.
Edge Act of 1919. After the First World War, Americans came home with a different view of the world and an interest in developing business internationally. The Edge Act permitted banks to conduct international business across state lines as a means of enabling them to better compete with foreign banks that were not restricted by state boundaries. One of the newest Edge Act banks is CLS Bank, Inc., established in 2002 to process the foreign exchange transactions for the new Continuous Link Settlement (CLS) process. CLS was developed to remove the risk inherent in delayed settlement in the foreign exchange markets (see Chapter 7).
Taken From : Essentials of Managing Corporate Cash
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