The Regulatory Powers of the Fed


Over the years the Fed has been given a multitude of regulatory powers over commercial banks. More recently the Fed has gained powers to regulate non-bank depository institutions especially in areas where the regulations impact the Fed’s ability to conduct monetary policy and create the conditions that are conducive for the best forex trading.The Banking Act of 1933 which is often called the Glass-Steagall Act gave the Fed the power to regulate the maximum interest rate that banks could pay to depositors under the list of regulations. The Fed was given his power to prevent excessive and destructive competition among banks to attract funds from depositors. At the time it was believed that excessive competition for deposits contributed to bank failures and the great depression which began in 19 39. Subsequently this regulation paradoxically have adverse effects on banks and other depository institutions. The reason was that banks found it difficult to attract or retain deposits when the market rate of interest was higher than the maximum rate banks could pay for funds under the Fed’s regulation. During these periods of time banks would face disintermediation as depositors withdrew their funds from banks and reinvested the money in financial instruments that paid the market rate. A depositor would only need to receive some forex trading tips and then he will close out his account to invest.In fact money market mutual funds emerged in the early 1970s to revive in investment medium that pay the market rate of interest to consumers and investors with small dollar balances. Ultimately this regulation was phased out by the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Depository Institutions Act of 1982. It it seems that whether regulated or unregulated the Fed is unable to maintain economic prosperity for a length of time without creating artificial booms and busts. Are these wise economic policies?

Article Tags:
Regulatory Powers, Depository Institutions, Market Rate

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Rhab Hendrik is an author who shares his fx trading experiences with others. He can always be counted on to bring you the latest in forex training to help you learn forex trading as easily as possible.

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