A Brief Description of US Financial Regulatory System

Orcun Kahyaoglu


The major regulators are Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), and National Credit Union Administration (NCUA).

What do they regulate?


Office of the Comptroller of the Currency regulates chartering, licensing, branching both intra-state and interstate, mergers-acquisitions-consolidations both intra-state and interstate, supervision and examination, prudential limits-safety-soundness and the consumer protection’s enforcements of National Banks and Federal U.S. Branches and Agencies of Foreign Banks.

Office of Thrift Supervision regulates chartering, licensing, branching both intra-state and interstate, mergers-acquisitions-consolidations both intra-state and interstate, supervision and examination, prudential limits-safety-soundness and consumer protection’s enforcements of Insured Federal Savings Associations and it regulates Insured State Savings Association by all of the above except chartering and licensing regulations. OTS also regulates Savings Association Holding Companies as the same as Insured Federal Savings Associations with the exception of consumer protection’s enforcement.

National Credit Union Administration regulates chartering, licensing, mergers-acquisitions-consolidations both intra-state and interstate, supervision and examination, prudential limits-safety-soundness and the consumer protection’s enforcements of Federal Credit Unions. It also regulates mergers, acquisitions and consolidations of State Credit Unions.

Financial regulation’s complexity

Mishkin states that in order to increase the information available to investors and ensure the financial system’s soundness; the government regulates financial markets and intermediaries. He also adds “Regulations include requiring disclosure of information to the public, restrictions on who can set up a financial intermediary, restrictions on what assets financial intermediaries can hold, the provision of deposit insurance, reserve requirements, and the setting of maximum interest rates that can be paid on checking accounts and savings deposits.” (2012, p. 9). All these interrelated regulations and decentralized power seeking and the most significantly federalism make the financial regulation so complex.

Mishkin, F. S. (2012). The Economics of Money, Banking, and Financial Markets (10^th ed.). New York: Pearson. 

Behaviors of the Underclass and Dysfunctional Culture

Orcun Kahyaoglu

Wilson’s underclass theory emphasizes external causes to be the determinant of the underclass behavior. In his explanation, Wilson identifies that a change in availability of opportunities would override what is seen as deviant behavior due to cultural dysfunction. Availability of job opportunities and positive external causes would change the cultural norm that is attributed to underclass deviant behavior (Schiller, 2008).

While comparing parents’ aspirations and expectations for their children’s opportunities for employment, Wilson’s research observed that parents from impoverished families have high aspirations for their children securing respected jobs but minimal expectation that they will reach those aspirations. There is the dysfunctional culture that is created by belief that there are no chances for success within the underclass society. However this culture can be changed if the expectations would match the aspirations. 

While collecting responses of students from poor and non-poor families on their expectations to complete college education, Wilson’s research observed that students from both the poor and non-poor families had high aspirations to complete college education. However, only a reduced percentage of students from the poor families actually complete the college education as compared to children from non poor families (Schiller, 2008).

Pedersen (2002) explains behavior therapy, which seeks to train individuals on how to interact with cultural influence on behavior. Dysfunctional culture acts only as a status quo in determining the deviant behaviors of underclass. If external causes would be brought in to influence or help the underclass attain their aspirations and expectations, they would deviate from the acclaimed dysfunctional culture. Dysfunctional culture is created by the repeated inability to attain the expectations meaning if the expectations could be attained, then the whole cultural setting would change resulting to a positive change in behavior.

Pedersen, P. B. (2002). Counseling across cultures. Thousand Oaks [u.a.: SAGE.

Schiller, B. R. (2008). The economics of poverty and discrimination. Upper Saddle River, NJ: Pearson/Prentice Hall.

The FED’s View of Current State of The US Economy

Orcun Kahyaoglu


Fed’s most recent monetary policy is the dual mandate. The committee seeks to foster maximum employment and price stability. These actions are necessary to expand economy moderately.

Dual mandate refers to promote effectively the goals of maximum employment, stable price and moderate long-term interest rates (Federal Reserve Bank of Chicago, 2012). The unemployment rate part is more of a concern for the Fed at present. The high oil and gasoline prices at the first months of 2012 is expected to have a temporarily effect on inflation and it will run at or below the rate that it judges most consistent its dual mandate (Federal Reserve, 2012, para. 2).

The US economy has been expanding moderately. The unemployment rate has declined but remains lifted up. There is a continuity to advance for household spending and business fixed investment. The housing sector remains depressed. Recent inflation rate is high because of the high prices of crude oil and gasoline but in the long-term it remains stable (Federal Reserve, 2012, para. 1).

It is a common issue to compare the experiences of Japan in the late 1990s to recent US monetary policy. So there is this view circulating that the views Ben Bernanke, the Chairman of Federal Reserve, expressed about 15 years ago. On the bank of Japan are not inconsistent with US policies. His views and the policies today are completely consistent with the views that he held at that time. He made two points at that time to the Bank of Japan. The first was that he believes that a determined central bank could and should work to eliminate deflation that is, falling prices. The second point that he made was that when short-term interest rates hit zero, the tools of a central bank are not exhausted, there are still no other things that the central bank can do to create additional accommodation. The current situation in US is that US is not in deflation. When deflation became a significant risk in late 2010, they used additional balance sheet tools to help return inflation close to the %2 target. So the difference between the Japan situation in the late 1990s and US situation today is that Japan was in deflation and when there are deflation and recession, then both sides are demanding additional accommodation. On the contrary, US’s policy is extraordinarily accommodative (Bernanke, 2012).

Bernanke continued to explain the problems with the current deficit. An increase in the interest rates will affect government debt payments that can cause budget deficits. Bernanke asked Congress to deliver a spending plan that included putting the deficit on a sustainable path to recovery, but not at the expense of the fragile economic recovery (Forbes, 2012).

The Fed responds to the “Too Big To Fail” problem that they are increasing supervisory and regulatory oversight of large financial institutions.  Fed also tries to eliminate the problem by allowing failing of large complex financial firms, which come to the brink of failure.

Bernanke, B. (2012). Press Conference with Chairman of the FOMC, Ben S. Bernanke [Video tape]. United States

Federal Reserve. (2012). Press Release. Retrieved from: http://www.federalreserve.gov/newsevents/press/monetary/20120425a.htm

Federal Reserve Bank of Chicago. (2012). The Federal Reserve’s Dual Mandate. Retrieved from: http://www.chicagofed.org/webpages/publications/speeches/our_dual_mandate.cfm

Forbes. (2012). Bernanke: Sacrificing Price Stability For A Few Jobs Would Be ‘Reckless’. Retrieved from: http://www.forbes.com/sites/afontevecchia/2012/04/25/bernanke-sits-on-a-fence-qe-on-the-table-but-dangerous/

The History of Money

Orcun Kahyaoglu

Money is the medium of exchange that means people accept money in trade for goods and services in today’s world. In ancient times, beads, seashells, fishhooks, and cattle were been using before the money was invented. Money was first used by Lydian in 637 B.C. as valuable metal coins.

Based on commodity money concept these coins were made from metal, which often had similar value with the coins’ net present value.

Then, the paper currency was introduced by Chinese in later 1300s. There were the emperor’s seals and signatures on these currencies.

White defines representative money that is made of cheap metal or convertible paper money that gets its value from the principal money, which it represents (1979, p.12). It was first used as a tobacco note in U.S. in 1715. U.S. government then issued silver and gold certificates in the late 1800s.

On the other hand, fiat money is the term for a medium of exchange, which is neither a commercial commodity, a consumer, a producer good, nor title to any such commodity; in other words, it is irredeemable paper money (Hoppe, 1994, p.49). U.S. Treasury stopped redeeming silver certificates in silver dollars in and the silver coins were removed from circulation replaced with cooper coins.

The Federal Reserve controls the money supply by setting monetary policies to keep prices stable and make people to have confidence on the dollar they use.

Hoppe, H. (1994). The Review of Austrian Economics. How isfiat money possible?-or, The Devolution of Money and Credit, 7(2).  

White, H. (1979). Money and Banking. Nature and Functions of Money. New Delhi: Naurang Rai

Simple Descriptions of Some Terms in Finance

Orcun Kahyaoglu

Direct Finance

Direct finance is the financial transaction between the lender and the borrower without using financial intermediation. The cost of underwriting is removed by selling the securities directly.

Financial Intermediation

Financial intermediation is a term that defines the process of what the financial intermediaries do. Financial intermediaries are the financial institutions that link surplus and deficit. In other words, they are the serving between lenders and borrowers for raising funds.

Capital Markets

It is the market where companies and governments raise funds that have periods longer than one year.

Secondary Markets

It is the market where the securities are sold and bought after the first issuers’ place. For example, U.S. Treasury issues bonds and these bonds are sold and bought at stock markets, which is a secondary market.  

Moral Hazard

Moral hazard is a term that is the encouragement to take risky or reckless action that arises when your losses are insured by someone else.

Systematic Risk

It is the intrinsic risk of the entire financial market.

Adverse Selection

It is the term originates when the buyers and sellers have different information. The results occurred are dreadful when the two sides have asymmetric information.

Gresham’s Law

Assume that there are two types of coins; one carries 1 gram gold let say it A and the other carries 1 gram silver let say it be B. Both A and B has a $100 face value; i.e., both of them have the same value. But people tend to spend B and save A because A has gold in it, which makes it more valuable in people’s mind. So the bad money drives out the good money.