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Regulation of Financial Institutions:
Teaching Materials (1998)

Table of Contents

Preface v
Table of Cases And Regulatory Decisions xvii
Table of Authorities xxiii
.   .   .
PART I — INTRODUCTION
CHAPTER ONE: The Business of Financial Institutions 1
Section 1.  Introduction 1
Section 2.  Financial Intermediation and the Need for Regulation 3
Section 3.  Trends in the Growth of Financial Intermediation 8
Section 4.  Financial Intermediaries, Corporate Finance, and the Problem of Hidden Motives 10
.   .   .
PART II — DEPOSITORY INSTITUTIONS
CHAPTER TWO: Banking History, Chartering and Antitrust 27
Section 1.  Development of the American Banking System 27
    A.  Introduction
27
    B.  European Origins of Banking in the United States
 31
    C.  The First American Banks
 32
    D.  The First and Second Banks of the United States
 35
    E.  The Free Banking Acts
 37
    F.  The National Bank Act
 38
    G.  The Federal Reserve System
 40
    H.  Trust Banking, Securities Activities, and Investment Banking
 41
    I.  The First American Banks
 32
    J.  The Bank Holding Company Act
 45
    K.  Banking Legislation in the 1980s and 1990s
 45
    L.  Structure of the Regulation of Banking Institutions in the United States Today
 47
    M.  Savings Banks, Savings and Loan Associations, and Credit Unions
 48
Section 2.  The Chartering Process 51
    A.  Introduction
51
    B.  State or National Charter?
 51
    C.  The Approval Procedure for National Banks
 56
Section 3.  The Competing Policies of Dual Banking and Competitive Equality 66
Section 4.  Bank Antitrust 86
    A.  Introduction
86
    B.  Bank Mergers and Acquisitions
 86
    C.  Tie-Ins
 97
    D.  Antitrust and Electronic Banking
 103
.   .   .
CHAPTER THREE: The Regulation of Bank Activities 117
Section 1.  Introduction 117
Section 2.  The Business of Banking 122
Section 3.  Lending Limits 141
    A.  Introduction
141
    B.  Obligations Governed by the Lending Limits
 143
    C.  Computation of the Limit
 145
    D.  Combining Loans to Separate Borrowers
 147
    E.  Loans to Officers, Directors and Principal Shareholders
 152
    F.  Loans to Affiliates
 154
Section 4.  Limits for Commercial and Real Estate Lending 156
    A.  Introduction
156
    B.  Loan Participations
 157
    C.  Letters of Credit and Bankers' Acceptances
 161
    D.  Lease Transactions
 165
    E.  Real Estate Lending and Ownership
 166
Section 5.  Transactions in Money Market Instruments and Investment Securities 169
    A.  Introduction
169
    B.  Federal Funds
 169
    C.  Bank Investments
 170
Section 6.  Deposits, Deposit Insurance, and Other Forms of Guarantee For Deposit and Nondeposit Liabilities 172
    A.  Introduction
172
    B.  Deposits
 173
    C.  Brokered Deposits
 179
    D.  New Deposit Products
 180
    E.  Security for Large Deposits and Non-deposit Bank Liabilities
 181
Section 7.  Capital Adequacy 184
    A.  In General
 184
    B.  Market Value Accounting
 207
Section 8.  Community Reinvestment Act 209
Section 9.  Trust Department Activities 224
    A.  Introduction
224
    B.  Typical Trust Services
 226
    C.  The Regulation of Trust Departments
 226
.   .   .
CHAPTER FOUR: Regulation of Organizational Structure 241
Section 1.  Introduction 241
Section 2.  Geographical Expansion of Banks 242
    A.  History
 242
    B.  The Definition of Branch
 244
    C.  Interstate Branching
 246
Section 3.  Bank Holding Companies 249
    A.  General Definition and Control
 250
    B.  Definition of Company
 255
    C.  What is a Bank?
 256
    D.  Geographical Restrictions on BHCs
 258
Section 4.  Restrictions on BHC and Bank Subsidiary Activities 261
    A.  Introduction
261
    B.  Nonbank Activities of BHCs—Defining "Closely Related to Banking"
 265
    C.  Nonbanking Activities of Bank Subsidiaries
 294
    D.  Unitary Savings and Loan Holding Companies
 303
Section 5.  Financial Obligations of Bank Holding Companies 306
.   .   .
CHAPTER FIVE: Troubled and Failed Banks 311
Section 1.  Introduction 311
Section 2.  Bank Reports and Examinations 315
    A.  Introduction
 315
    B.  "Unsafe or Unsound"
 318
Section 3.  Supervisory Enforcement Powers 334
    A.  Introduction
334
    B.  Cease and Desist Power
 337
    C.  Suspension, Removal, and Prohibition Power
 349
    D.  Civil Money Penalty Power
 355
    E.  Capital Directives and Prompt Corrective Action
 361
Section 4.  The Failed Bank 363
    A.  Introduction
 363
    B.  Open Bank Assistance and Least-Cost Resolution
 366
    C.  Determining Insolvency
 368
    D.  Resolution Costs of Bank Failures
 372
    E.  The Bankruptcy Code-Bank Receivership Interface
 379
    F.  Creditors and Priorities
 387
    G.  Debtors of the Failed Bank
 401
    H.  Officer, Director, and Institution-Affiliated Party Liability
 408
.   .   .
PART III — INSURANCE INDUSTRY
CHAPTER SIX: Introduction to Insurance Regulation 425
Section 1.  History of Insurance Regulation 425
    A.  Colonial Times
 426
    B.  Early Republic Through the Civil War: 1776-1865
 426
    C.  Post Civil-War Developments: 1865-1944
 428
    D.  Modern Insurance Regulation: 1944 to the Present
 434
Section 2.  Overview of Insurance Regulation 437
.   .   .
CHAPTER SEVEN: Issues in Insurance Regulation 455
Section 1.  Definition of Insurance 455
Section 2.  Interpretation of Insurance Contracts 466
Section 3.  The Regulation of Insurance Company Solvency 479
    A.  Executive Life Insurance Company: A Case Study
 479
    B.  The NAIC and Its Accreditation Project
 498
Section 4.  Insurance Rates and Risk Classifications 506
    A.  Rate Regulation
 507
    B.  Risk Classifications
 541
Section 5.  The Mutual Form 551
    A.  Demutualization of Insurance Companies
 551
    B.  Conversion of Savings Banks
 568
.   .   .
CHAPTER EIGHT: Federal-State Relations in Insurance Regulation 579
Section 1.  Constitutional Limitations 579
Section 2.  The McCarran-Ferguson Act 588
    A.  The Business of Insurance
 590
    B.  Boycotts Under McCarran-Ferguson
 597
Section 3.  Employee Benefit Plans Under ERISA 611
    A.  Preemption of State Law
 616
    B.  Private Enforcement of ERISA Requirements
 636
.   .   .
PART IV — THE SECURITIES INDUSTRY
CHAPTER NINE: Introduction to the Securities Industry 653
Section 1.  History of Broker-Dealers and their Regulation 654
    A.  Early Regulation and State Blue Sky Laws
 655
    B.  Federal Securities Regulation and the New Deal
 657
Section 2.  The Business of Securities Firms 664
Section 3.  Current Regulatory Structure 669
.   .   .
CHAPTER TEN: The Regulation of Broker-Dealers 675
Section 1.  The Definition of Broker-Dealer 675
Section 2.  The Obligations of Broker-Dealers 681
    A.  Early Cases
 681
    B.  The Advisory Relationship
 689
    C.  Broker-Dealers as Market-Makers and Underwriters
 708
    D.  The Obligation to Supervise
 722
Section 3.  Arbitration of Disputes 729
Section 4.  Financial Obligations of Broker-Dealers 735
.   .   .
CHAPTER ELEVEN: The Regulation of Trading Markets 751
Section 1.  Introduction 751
Section 2.  The Role of Self-Regulatory Organizations 755
Section 3.  Broker-Dealers in Trading Markets 784
    A.  Limit Orders
 784
    B.  Payment for Order Flow
 796
.   .   .
PART IV — THE INVESTMENT COMPANY INDUSTRY
CHAPTER TWELVE: Introduction to Investment Companies 811
Section 1.  History of the Investment Company 812
    A.  Origin and Development of the Investment Company
 812
    B.  Abuses Preceding the Reforms of 1940
 815
    C.  Passage of the Investment Company Act and the Investment Advisers Act
 817
    D.  Evolution of Investment Companies Since 1940
 821
Section 2.  Organizing a Mutual Fund 824
.   .   .
CHAPTER THIRTEEN: The Regulation of Investment Companies 839
Section 1.  The Definition of an Investment Company 839
Section 2.  Fiduciary Duties and the Role of Directors 851
    A.  Brokerage Allocation
 851
    B.  Transfer of Advisory Contracts
 871
    C.  Oversight of Advisory Fees
 882
Section 3.  Disclosure Documents for Investment Companies 904
    A.  The Content of Disclosure Documents
 905
    B.  Disclosure Problems in Closed-End Companies
 929
Section 4.  Structural Restraints under the 1940 Act 949
    A.  Anti-Conflict Rules Under the 1940 Act
 950
    B.  Portfolio Restrictions for Money Market Mutual Funds
 956
.   .   .
PART VI — INTER-INDUSTRY COMPETITION
CHAPTER FOURTEEN: Innovations in Insurance Products 971
Section 1.  Variable Products Under Other Legal Regimes 972
Section 2.  Futures and Options 1004
.   .   .
CHAPTER FIFTEEN: Depository Institutions in the Securities Business 1033
Section 1.  Background on the Glass-Steagall Act 1033
Section 2.  Brokerage Activities 1043
Section 3.  Advisory Services & Related Activities 1070
Section 4.  Underwriting and Dealing 1085
.   .   .
CHAPTER SIXTEEN: Depository Institutions in Insurance 1113
Section 1.  Background 1113
Section 2.  Expansion Through State-Chartered Banks 1116
Section 3.  Expansion Through National Banks 1121
    A.  Section 92 Powers
 1121
    B.  Insurance as an Incidental Banking Power
 1126
Section 4.  State Authority Over Bank Insurance 1133
.   .   .
Index 1143

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