• Background: Regulation aimed at ensuring stable finance system, more regulation since 1991 savings and and crisis
• Pro Argument: resolves issues associated with taxes and growing retired population, income tax evasion, illegal immigration
• Country Comparison: Japan implemented consumption tax with poor combination of reforms.
• Recent Legislative Activity: Pres. Bush's advisory group on tax reform

Background

Banking regulation is monitored by the Securities and Exchange Commission to ensure the stable functioning of the financial system. The United States has one of the most highly regulated banking sectors in the world. Regulation is mostly focused on privacy, disclosure, fraud prevention, anti-money laundering, anti-terrorism, anti-usury lending, and promoting lending to lower-income individuals. In addition, federal regulations requires banks maintain a minimum reserve that cannot be loaned. Regulators can also force banks to increase their reserves when needed. The United States Federal Deposit Insurance Corporation is a government corporation that guarantees deposits are returned to costomers of commercial banks. Knowing that the government will intervene in times of crisis, banks can be less cautious with investments. Therefore, financial institutions are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System. The United States has tightened up regulations since the 1991 savings and loan crisis in which financial institutions started taking riskier investments after Congress liberalized interest rates credit markets, leading the the failure of over 2,900 banks.

International Regulation

An international effort to establish common banking standards has been led by the members of the G10. The Asian Financial Crisis in the late 1990s demonstrated the international effects that the financial system of one country may have when it fails. The latest accords, Basel II, establishes an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against risk.

Recent Legislative Activity

• The Accord reached at Basel II in 2004 and its subsequent updates required an increase in the United States' capital requirements.