Bank Regulation

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Bank Supervision and Regulation

In order for the United States economy to be successful, there has to be some kind of regulations in place. If there is a stable and sound financial system in place, that will increase the effectiveness of the economy and also increase the effectiveness of monetary policy. The institution that is in charge of supervising and regulating financial institutions is the Federal Reserve. Bank supervision includes things such as monitoring and examining the condition of banks and their compliance with laws and regulations. If a bank is found to be noncompliant with the rules or there are problems found, then the Federal Reserve can make the bank fix these problems. To ensure that financial institutions safely manage operations and are providing their customers fair and equal services, the Federal Reserve works with federal and state authorities. To help determine monetary policy, the Federal Reserve also gathers information on trends in the financial industry. The Federal Reserve has two main focuses in the bank regulation and supervision process. These focuses are the safety and soundness of financial institutions and compliance with consumer protection laws. To measure this, an examiner is sent on location and gives a review based on how the bank has performed. This includes management and financial condition and how the bank has complied with regulations. The rating system that the examiner uses is called CAMELS. This helps measure the safety and soundness of the bank. CAMELS stand for: capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. These are the six components of the banks condition. When determining the CAMELS rating, the examiner looks at the overall health of the bank and how well the bank is able to manage risk instead of reviewing every little detail. Risk is the bank’s ability to collect from borrowers and meet the claims of its depositors. When the safety and soundness...
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