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Banking Law
University of North Carolina School of Law
Broome, Lissa Lamkin

Bank Law Notes

Background of American Banking

Five Goals of this course

Learn the substance of banking law- how is it all structured, general relevant laws (title 12 USC, handout book)
Learn about policies behind the regulatory structure- ways to change/improve the structure
Understanding the business of banking
Learn the sources of banking law- where to go to answer questions?
Learn the practice of banking law in general – outside speakers etc

Banks have two unique characteristics: Casebook: 141-145
1) Financial Intermediation
2) Checking Accounts

1) Financial Intermediation
· Financial intermediaries pool the excess funds of various entities (individuals and businesses) and they lend these funds to those who need them.
· This matchmaking services earns the intermediary a fee.
· Financial intermediaries have expertise that better allows them to choose where to invest the pooled excess funds.
a. Intermediation v Direct Investment
i. Intermediation: The bank invests the pool of deposits provided by depositors at the bank.
1. The Depositors are thus the creditors of the bank.
2. The bank makes money by charging more interest when they lend the pooled funds out then they pay the depositors in interest.
3. These institutions since they have more funds, are better able to diversify away risk.
ii. Direct Investment: The individual with excess funds lends the funds directly to a borrower.
1. Direct investment may (and probably will) offer a better return.
2. Direct investment is riskier and there may not be as much liquidity of the investment.
3. Also, the direct investor may be less experienced then an intermediary would be and thus is less able to measure the risk of the investment.
b. Intermediaries have two categories:
i. Depository institutions: The institution gets deposits from people to use for loans to others. They profit from the spread of the insurance they pay to depositors and the interest they take in from those that they loan money to.
1. banks
2. savings & loan
3. credit union
ii. NonDepository institutions: These include insurance, pension funds, and finance companies. They take in funds from there investors (sometimes in the form of premiums) and they pa

. Acting as the depository institution for banks in its own district
· The Federal Reserve System is subject to Congressional Oversight.
· The income of the Federal Reserve comes from interest on US government securities that it acquires through open market operations, interest on foreign currency investments held by the system, interest on loans to depository institutions (at the discount rate), and the fees received for services provided to depository institutions such as check clearing, funds transfers, and automated clearinghouse operations.
· After paying its expenses, the Federal Reserve turns over the rest of its earnings to the US Treasury. So far 95% of the Fed’s net earnings have been paid to the treasury since the Fed’s inception in 1914.
· The Federal Open Market Commission is charged with overseeing open market operations.
· Monetary policy controls the amount of money in the economy.