Banking Regulations
When a bank fails the bank’s customers, the depositors, suffer as much or more than the bank’s owners. Failure of one large bank in todays globalized world can trigger losses across the boundaries of nations as the international commerce today is so closely interwoven. This makes the banking industry an excellent candidate for government regulation. Bank lending policy can also aggravate the business cycle. During an economic downswing banks can become overly cautious, restricting the availability of loans and sending the economy into a steeper downward spiral. On the upswing, however, if banks are willing to take more risks and generously granting loans they can propel the economy into an inflationary boom.
Protecting banks and bank customers from bank failures of this sort is the aim of much government banking regulations. Government regulation strives to protect bank depositors from bank failures and to encourage banks to become a stabilizing force in the economy. Commercial banks are institutions dealing in money. These are governed by various regulations prescribed in each country to regulate banking industry. In India banks are governed under the Indian Banking Regulation Act, 1949.
In this section we will discuss some historical regulations that had an major impact on banking industry, as well as, some modern banking regulations that are shaping the present and future of the banking industry.
Banking is commonly treated as a matter of public interest. Banking industry is tightly regulated by various laws and regulations (prescribed and enforced by various governments) that controls and influences many aspects of banking. This article explains how the bank regulations have evolved across globe to serve numerous goals.
Under a gold standard, the value of a unit of currency, such as a dollar, is defined in terms of a fixed weight of gold and bank notes or other paper money are convertible into gold accordingly. All the economically advanced countries of the world were on the gold standard for a relatively brief time. Learn More!
Under a gold exchange standard a nation’s unit of money is convertible at an official rate into a unit of money of a pure gold standard nation—that is, a nation that maintains the convertibility of its unit of money into gold at an official rate. Learn more!
This act unequivocally defined the value of the dollar in terms of gold alone, without reference to another metal. The dollar was defined as equal to “twenty-five and eight-tenths grains of gold nine-tenths fine.” Responsibility for maintaining parity fell to the secretary of the Treasury. No gold certificates were to be issued under $20, and silver remained as a subsidiary coinage and currency, with 90 percent of silver certificates remaining under $10.
With the help of loans from the Federal Reserve Bank of New York and a United States banking syndicate, England returned to the gold standard. The ban on the export of gold was lifted and the Gold Standard Act of 1925 made the pound convertible into gold at prewar parity. 
The Gold Standard Amendment Act of 1931 is a rather euphemistic title for an act that marked the end of the international gold standard. The gold standard had provided the world with a stable monetary system from the 1870s until 1914, and was regarded as the ideal monetary system in the aftermath of World War I.
The Gold Reserve Act of 1934 nationalized all monetary gold in the United States. Only the Treasury could own gold and buy and sell gold. The act also limited the power of the president to reduce the gold weight equivalent of a dollar, and the day after the passage of the Gold Reserve Act President Roosevelt fixed the gold equivalent of the dollar at $35 per ounce of gold.
The principle of fractional reserve banking lies at the heart of the modern commercial banking system. During a given period of time a bank will receive fresh deposits while existing deposits are withdrawn.