Major Issues in the Regulation of Financial Institutions

ALL financial institutions in the United States are regulated to greater or lesser extent and are encumbered with restrictions that range from regulation of entry to restrictions on the purchase of particular assets and of the rate of interest paid on particular liabilities (Gies, Mayer, and Ettin, 1963). The owners of financial institutions are, in part, compensated by special treatment under the tax laws (Keith, 1963), so that the net effect of governmental laws and decisions on the volume of assets invested in financial institutions—as well as the relative effect on the various specialized institutions—is difficult to calculate. The effect on resource allocation of these restrictions and tax shelters is unknown also.