This course examines the law and policy pertaining to financial institutions, with a particular focus on the regulation and supervision of large, complex financial firms. The class will examine the fundamental nature of the banking firm as a financial intermediary offering payment services, and will illustrate how the need to maintain transaction accounts for customers leads to instability in the banking firm. Deposit insurance as a remedy for financial instability will be stressed, as well as the problem of moral hazard and devices for counteracting the risk-taking incentives created by deposit protection. Rules governing non-bank financial institutions will be examined and compared with bank-specific rules.
