The permissive attitude of one bank regulatory agency toward mergers and other aspects of banking has directly led to a number of banking institutions leaving the regulatory jurisdiction of one agency and switching to the jurisdiction of another agency. This had led to a tendency to regulate at the level of the lowest common denominator at the Federal level. I believe this kind of lowest common denominator regulation has been in part responsible for a trend toward concentration of banking resources in this Nation along with the trend toward an illiquid and undercapitalized banking system. The fragmented regulatory structure is too cumbersome to cope with the problem. If one agency denies the acquisition of a bank by a holding company the bank holding company can turn right around and apply to have the bank sought to be acquired merged into a bank under the regulatory jurisdiction of another agency. There is in short, no coherent policy at the Federal level to control the concentration of banking resources in this nation. I have not attempted to catalogue each deficiency in the existing regulatory framework. This Compendium is offered as a starting point for that discussion and the steps that will be necessary to correct the situation. WILLIAM PROXMIRE, Chairman. Chapter I.-Entry and Establishment of Branches: "A Theory of the Government Regulatory Process in Commercial Banking," by Mukhtar M. Ali, associate professor, and Stuart I. Greenbaum, professor, Kentuck University--- "In Quest of Reason: The Licensing Decisions of the Federal Banking Agencies," by Kenneth E. Scott, professor of law, Stanford "Regulation and Branching Laws," by Dennis C. Bottorf, vice presi- dent, corporate planning, Tennessee Valley Bancorp, Inc---- "Entry Policy," by Thomas M. Havrilesky and William P. Yohe_--- Chapter II.-Banking and the Economy: "Banking and the Economy," by Thomas M. Havrilesky- "Banking and the Economy," by William G. Dewald, professor of Chapter III.-Composition of Bank Assets and Liabilities: "Changes in the Composition of Bank Assets and Liabilities; Bank Capital Adequacy; and Bank Failures: Their Effect on the Liquidity and Solvency of American Banks," by Paul M. Homan___ "Economic Instability and Commercial Banking," by Stuart I. Green- baum, professor of economics, University of Kentucky---- "Financial Instability, the Current Dilemma, and the Structure of Chapter IV.-Capital Adequacy for Banks and Bank Holding Companies: "The Adequacy and Structure of Capital for Banks and Bank Holding "Bank Capital from the Perspective of Shareholder Interests-Impli- cations for Bank Regulation," by John J. Pringle, Graduate School of Business Administration, University of North Carolina---- "Capital Adequacy of Commercial Banks: A Question of Balance," . "Examination and Supervision: Indications and Inferences," by Charles R. Whittlesey, professor of finance and economics_‒‒‒‒ "Standby Letters of Credit and Other Bank Guaranties," by Timothy D. Naegele, Partner in law firm of Brownstein, Zeidman, Schomer, "Forestalling Bank Failure," paper received from Gerald T. Dunne, professor of law, Saint Louis University. Chapter VIII.-Prevention of Failures: Domestic and International "Preventing Bank Failures," by George C. Kaufman, professor of Page Banking and Finance, University of Oregon--- 769 797 "Prevention of Failure," by Edward E. Edwards, professor of finance 826 "Bank Failures and the Public Interest," by Dale Tussing, professor of economics, Syracuse University-. 833 "Preventing the Failure of Large Banks," by Thomas Mayer, University of California, Davis 847 Chapter IX.-Regulatory Structure: Letter from J. L. Robertson, former Vice Chairman, Federal Reserve 865 "Federal Bank Regulatory Reform," by Jeffrey M. Bucher, member, Federal Reserve Board_. 873 "1975-The Year for Federal Banking Regulation Reform," by John 890 909 "Issues in Bank Regulations," by Raymond J. Saulnier, professor of economics, Columbia University-- 930 Compendium of Major Issues in Bank Regulation Chapter I.-Entry and the Establishment of Branches A THEORY OF THE GOVERNMENT REGULATORY PROCESS Mukhtar M. Ali and Stuart I. Greenbaum* Rev. 2-75 Public regulation of commercial banking has a long and fractious history in the U.S. An administratively fragmented and normatively obscure regulatory patchwork is the result. In frustration, we periodically commission blue-ribbon panels to plumb the purposes and mechanics of bank regulation and yet the basic understanding sought seems to remain well hidden. This paper seeks to explain one facet of the public regulation of commercial banking, the control of entry and exit of firms (banks) and plants (branches). Much institutional detail is cut away and the process in question is viewed as an optimizing problem confronting a single regulatory agency. A legislature, functioning as an ultimate authority, commissions the regulator to serve as its agent. The regulator is provided with policy instruments and well-defined desiderata in the form of a criterion function and is instructed to formulate and implement optimizing policy. In what follows, we provide a concrete interpretation of the criterion function which can be taken as illustrative although we believe it represents a plausible description of Congressional will as reflected in legislation. We then posit alternative assumptions regarding the behavior of the regulator and the nature of his control over entry and exit and explore the properties of solutions to the optimizing problem. |