Question

a goal of many parts of u.s. regulatory legislation has been to eliminate/minimize conflicts of interest between issuers investment banks and investors. provide examples of conflicts of interest in the u.s. investment banking industry and the corresponding regulations that attempted to resolve those issues.

Answer 1

Conflicts of interest in the U.S. investment banking industry can arise when the interests of issuers, investment banks, and investors are not aligned. Regulations such as the Global Research Analyst Settlement and the Volcker Rule have been implemented to address these conflicts.

Step-by-step explanation:

Conflicts of interest in the U.S. investment banking industry can arise when the interests of issuers, investment banks, and investors are not aligned, potentially leading to unfair practices and biased advice.

One example of a conflict of interest is when an investment bank underwrites an initial public offering (IPO) for a company and also provides research coverage on that same company. This can create a situation where the investment bank has a financial interest in promoting the IPO while also providing an objective assessment of the company's prospects.

To address this issue, the U.S. Securities and Exchange Commission (SEC) implemented regulations such as the Global Research Analyst Settlement in 2003. This settlement aimed to separate the research and investment banking functions within investment banks, prohibiting analysts from being involved in the IPO process.

Another example of a conflict of interest is when investment banks provide loans or credit to companies and also engage in securities trading activities related to those same companies. This can create a situation where the investment bank has an incentive to promote the company's securities for its trading activities while also assessing the creditworthiness of the company.

To mitigate this conflict, regulations such as the Volcker Rule were introduced as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Volcker Rule restricts banks from engaging in proprietary trading and limits their investments in certain types of private equity and hedge funds.

Answer 2

U.S. regulatory legislation like the Glass-Steagall Banking Act and later regulations have targeted conflicts of interest by separating banking operations and bolstering oversight. Reserve requirements, capital requirements, and investment restrictions are enacted to protect depositors and ensure bank solvency.

Step-by-step explanation:

A major goal of U.S. regulatory legislation has been to address conflicts of interest within the U.S. investment banking industry. Conflicts of interest can arise when financial institutions engage in activities that serve their own interests at the expense of clients or when they have controlling interests in multiple sectors of the financial industry.

One prominent example of legislation aimed at eliminating these conflicts is the Glass-Steagall Banking Act. Implemented in June 16, it established the Federal Deposit Insurance Commission (FDIC) to oversee the banking sector and made significant strides in separating commercial banking, investment banking, and insurance operations. This separation aimed at preventing banks from engaging in risky investment practices with depositor's funds. The provisions intended to prevent conflicts of interest were, however, repealed in 1999. In response to the financial crisis of 2008-2009, new regulations were introduced. For example, a bill that expanded the regulatory powers of the Federal Reserve Bank was approved to bolster oversight and mitigate risks within the financial markets.

To ensure the solvency of banks and minimize risk, banking legislation has also set forth a variety of regulations including reserve requirements, capital requirements, and restrictions on the types of investments banks can make. These measures serve to protect depositors and maintain the financial stability of the banking sector. The intent is to promote transparency and early action in the face of any problems that might pose a risk to the overall financial system.