Question

In: Finance

U.S. banking regulations prevent banks from owning major corporations. In other countries, the banking industry is...

U.S. banking regulations prevent banks from owning major corporations. In other countries, the banking industry is much more integrated with the corporate sector, with banks owning corporations or being owned by them, allowing easier finance for corporations. Is the United States at a competitive disadvantage because of its regulations? What would be the benefits and costs if the United States were to liberalize its regulations and allow greater integration of banking and commerce?

Solutions

Expert Solution

Yes, the United States is at a competitive disadvantage because of its regulations. This is because regulations are strict and banks are not allowed to own major corporations or to be owned by them leading to lower levels of integration of banking and commerce in the region. Due to lower levels of integration of banking at commerce in USA the country is at a competitive disadvantage because of two main reasons – easier finance for corporations are not as readily available as in cases of those countries in which banking and commerce are integrated. Secondly in many cases and instances loans are expensive on a comparative basis, even though marginally so.

The benefits that will come into picture if the United States were to liberalize its regulations and allow greater integration of banking and commerce is that finance will be available more easily and readily for corporations and this will give a stimulus to corporate expansion and economic development in the long run.

In terms of costs liberalization of regulations and allowing greater integration of banking and commerce may lead to excessive risk taking by corporations and hence the probability of default and corporate failures may rise in future. It may lead to creation of more risky asset portfolios for banks and hence their chances of failure will most probably increase in the long run.


Related Solutions

What government regulations are there in place to prevent banks from failing in finland?
What government regulations are there in place to prevent banks from failing in finland?
Why did the 2007 U.S. subprime crisis spread rapidly? A. Banks in other countries failed to...
Why did the 2007 U.S. subprime crisis spread rapidly? A. Banks in other countries failed to measure the risk of real estate derivatives. B. The United States adopted the fixed exchange rate system. C. The Fed failed to act at the right time. D. The United States had a large current account surplus. E. There was speculation against the U.S. dollar.
what can  the U.S. learn from other countries? (whether implementing the strengths of other countries is possible...
what can  the U.S. learn from other countries? (whether implementing the strengths of other countries is possible within the United States’ political/social/cultural context)
"Digital banks" discuss their advantages and disadvantages for the whole banking industry
"Digital banks" discuss their advantages and disadvantages for the whole banking industry
1)Prior to the dual banking system, the U.S. banking system included: A.  National banks that used a...
1)Prior to the dual banking system, the U.S. banking system included: A.  National banks that used a national currency B.  A powerful central bank responsible for money and credit in the economy C.  a state banking system   C.  a state banking system 2)Financial innovation in the banking industry often occurs in response to changes in financial markets, the regulatory environment, or new technology. The following questions consider how banks respond to various conditions in the banking industry.   Money-market mutual funds allowed individuals to avoid...
Many U.S. companies have moved to other countries where tax rates are more favorable. Corporations argue...
Many U.S. companies have moved to other countries where tax rates are more favorable. Corporations argue that they owe it to their stockholders to locate where net profit is maximized. Corporations face double taxation in the United States since corporate profits and dividends paid to stockholders are taxable. Should we reduce or eliminate taxes on corporate profits in the United States to lure more of these companies back to the U.S.? Please address the arguments on both sides of this...
Explain in detail why capital regulations and capital management are important in the banking industry.
Explain in detail why capital regulations and capital management are important in the banking industry.
How is the QE approach of the RBA different from that of other major central banks?
How is the QE approach of the RBA different from that of other major central banks?
Business is booming for banks in Mainland China. The banking industry recorded a strong growth in...
Business is booming for banks in Mainland China. The banking industry recorded a strong growth in lending in recent years. According to the findings by the Chinese government, increased lending in local currency was extended mainly to retail customers by Chinese banks while foreign banks focused their lending largely on corporate customers. (a) Many foreign banks are actively developing their businesses in Mainland China. Critically discuss three major business considerations behind their strategies. (b) Many local banks in Hong Kong...
Why is tourism considered an industry here and in other countries?
Why is tourism considered an industry here and in other countries?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT