FIN FPX 5710 Assessment 3 Organizational Review of Regulatory Policies FIN-FPX5710 Economic Foundations for Financial Decision Making Regulatory Analysis

Banks serve a crucial role in the functioning of local, state, national, and international economies. They provide consumers with a secure place to store their money and use those funds to offer loans for productive investments. Various types of banks exist, each offering essential services that help maintain the smooth operation of the economy. Due to their importance in economic health, banks are subject to stringent government regulations to ensure the security of the money supply. Many of these regulations have arisen in response to significant banking failures that triggered recessions or financial market stress. This report will review the history of these regulatory actions, current regulations, and the potential impact on Midwest Global Investment Bank as it goes public under these regulations.

Regulatory Legislation

Over the years, numerous regulatory measures have been implemented to ensure the protection of consumer, business, and federal funds. Banks are arguably the most regulated industry in the United States. Early on, the need for banking regulations was recognized, but it took nearly two centuries to establish the current regulatory system. In the 1790s, the federal government attempted to create the first regulatory entity, the Bank of the United States, which acted as both a private and central bank (Mishkin, 2019). This attempt to regulate state banks faced opposition and was short-lived. In 1816, the government tried again with the Second Bank of the United States, aimed at addressing the abuses of state banks and supporting the government in raising funds during wars (Mishkin, 2019). This, too, faced resistance and was repealed. Throughout much of the 1800s, commercial banks were chartered by states and often failed due to corruption or insufficient funds (Mishkin, 2019). Federal attempts to regulate the banking system were unsuccessful until the early 1900s.

In 1913, the Federal Reserve, the current central bank of the United States, was established to create a safer banking system and maintain control over the economy’s money supply. All national banks were required to become members of the Federal Reserve and adhere to its regulations (Mishkin, 2019). State banks had the option to join, but many opted to remain independent to avoid restrictions. However, after a decade, significant regulations were introduced following the Great Depression, during which over 9,000 banks failed (Mishkin, 2019). The Federal Deposit Insurance Corporation (FDIC) was created to protect consumers’ and businesses’ bank deposits. All federal banks were required to purchase insurance and comply with additional regulations, with state banks also opting in (Mishkin, 2019). The FDIC protects depositors’ funds, up to a certain limit, even if the bank fails.