1. Copyright © 2002 Pearson Education, Inc. Slide 15-1

2. Copyright © 2002 Pearson Education, Inc. Slide 15-2 Chapter 15 Banking Regulation: Crisis and Response

3. Copyright © 2002 Pearson Education, Inc. Slide 15-3 Pattern of Regulation First stage: crisis in the banking industry. Second stage: government steps in to end the crisis through regulation. Third stage: response by the financial system. Fourth stage: regulatory response.

4. Copyright © 2002 Pearson Education, Inc. Slide 15-4 Figure 15.1 Lender of Last Resort

5. Copyright © 2002 Pearson Education, Inc. Slide 15-5 Anticompetitive Bank Regulation The federal government sought banking stability by limiting competition. Anticompetitive regulations created profit incentives for unregulated institutions.

6. Copyright © 2002 Pearson Education, Inc. Slide 15-6 Figure 15.2 Interest Rate Ceilings

7. Copyright © 2002 Pearson Education, Inc. Slide 15-7 Figure 15.3 Deposit Insurance

8. Copyright © 2002 Pearson Education, Inc. Slide 15-8 Proposals for Regulatory Reform Reduce the level of deposit insurance coverage. Narrow banking: insuring deposits in safe assets. Deposit insurance can be provided by private insurance companies. Risk-based pricing of deposit insurance Market-value accounting

9. Copyright © 2002 Pearson Education, Inc. Slide 15-9 Lessons from Banking Regulation for Institutions Distinction between banks and insurance companies for regulatory purposes may be outdated. Problems resulting from deposit insurance protection also apply to pension funds.