The regulation of non-bank financial institutions: the United States, the European Union, and Other Countries

Authors: Kumar, Anjali, Terry M. Chuppe, and Paula Perttunen
Publication: World Bank Publications No. 362 (1997).

Abstract: This discussion paper describes the regulatory framework adopted in some mature market economies, and regulatory issues arising in some emerging markets. Part 1 first briefly describes the enormous growth of non-bank financial institutions in recent years, the situation of non-banks in the financial systems of different countries and the challenges such institutions pose for risks in financial systems. Part 2 then examines in detail the regulation and supervision of non-bank activities and institutions, primarily in the United States, but also in many emerging markets. In the US, commercial banks and bank holding companies have been permitted, since the late 1980s, to offer a wider range of financial services, due to more liberal interpretations of the provisions of the Glass-Steagall Act of 1933 and the Bank Holding Company Act of 1956. Federal and state banking authorities supervise commercial banks; the Securities and Exchange Commission (SEC) primarily regulates investment funds and securities broker-dealers; and separate regulatory structures do the same for individual and collective trust departments, private pension plans, and insurance company separate accounts. Part 3 examines European Union (EU) regulation of non-bank financial activities and institutions, particularly the aim to create uniformity between the legal systems of individual member states. The most significant regulations of the non-bank financial institutions are those requiring a supervisable group structure and supervision on a consolidated basis, including capital adequacy requirements, restrictions on bank holdings, and restrictions on large exposures.

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