Page 377 - Encyclopedia of Business and Finance

eobf_G 7/5/06 3:03 PM Page 354

Government Role in Business

Consumer Product Safety Commission. Another power- the United States could protect the banking system and,
ful federal agency was created in 1972 under the Con- in turn, the money supply. National Monetary Commis-
sumer Product Safety Act. The law created the Consumer sion recommendations were implemented by Congress in
Product Safety Commission (CPSC), which was intended 1913 when the Federal Reserve Act was passed and the
to protect consumers from defective and dangerous prod- Federal Reserve Board was established. The primary pur-
ucts. In addition, Congress also wanted to unify the pose of the Federal Reserve Board is to function as a semi-
majority of laws regarding product safety (except food, independent board designed to protect the banking
automobiles, and other products already regulated by fed- system in the United States.
eral agencies) so that they would be effective and clear.
The CPSC is very powerful; it can ban products without Federal Reserve Board activities are guided by a board
a court hearing if they are deemed dangerous and can of governors. The board has seven members, all of whom
order recalls, product redesigns, and the inspection of pro- are nominated by the president and confirmed or rejected
duction plants. In more severe cases, the CPSC may also by the Senate. Each member is appointed to a fourteen-
charge officers, managers, and/or supervisors with crimi- year term, with vacancies occurring about every two years.
nal offenses. The CPSC also maintains a Web site To be nominated to the Federal Reserve Board, an indi-
(http://www.cpsc.gov). vidual must possess excellent academic credentials, be an
established leader in the financial world, and have
achieved an impeccable business reputation. In order to
FEDERAL MONETARY REGULATORY
separate the board from political influences and to ensure
AGENCIES
that all decisions are based on economic rather than polit-
Several federal agencies have been established to monitor
ical issues, board members are appointed and will likely
monetary practices in the United States, including the
serve through several presidential administrations. The
Securities and Exchange Commission, the Federal Reserve
Board, and the Federal Deposit Insurance Corporation. board is headed by the chairperson, who is considered to
be the most powerful banker in the world. As such, the
chairperson directs the overall mission of the board and
Securities and Exchange Commission. The Securities and
consults regularly with the president, secretary of the
Exchange Commission (SEC) was established to regulate
the securities industries in the United States. A quasi- treasury, banking executives, stock market representatives,
and top banking regulators from other countries to coor-
regulatory and judicial agency, the SEC regulates publicly
traded stock-offering companies by requiring them to dinate financial policy.
issue annual and other financial reports. In addition, the
SEC regulates the stock market, brokers who sell securi- Federal Deposit Insurance Corporation (FDIC). Created
ties, and large investment firms. The SEC also looks for after the Great Depression of the 1930s, the Federal
insider trading, such as trading on secret knowledge about Deposit Insurance Corporation (FDIC) insures each
a company, other white-collar crime that may affect a account up to $100,000 in the event of a bank failure. In
company’s stock price, and securities fraud by stockbro- return for this protection, participating banks, credit
kers. unions, and other financial institutions must pay premi-
The agency can initiate civil or criminal action ums, which the FDIC uses to build up funds for any
against individuals or firms charged with securities viola- future bailouts. More information about the FDIC and its
tions. Depending on the circumstances, the penalties activities may be found at its Web site (http://www.
levied by the SEC can be severe, with large fines and long fdic.gov).
jail terms being the norm. The SEC normally works
closely with the Department of Justice when criminal
SUMMARY
prosecution is involved. The SEC’s actions can be
appealed to the federal courts if the individual or firm Government regulations and agencies at all levels of gov-
believes the charges are inaccurate or unjust. ernment have had a major impact on how businesses
operate. In order to manage business activities in a com-
Federal Reserve Board. As the United States grew, the plex, ever-changing society, governments at all levels have
nation’s banking system became more complex and sub- created numerous regulatory agencies through the legisla-
ject to greater fluctuations without government regula- tive process. Although the duties and function of agencies
tion. The United States experienced an acute money panic vary, all influence day-to-day business practices. Fre-
in 1907 that put a severe strain on the banking system. As quently regulated business activities include competitive
a result of the financial panic, the National Monetary practices, industry specific activities, Internet activities,
Commission was established by Congress to study how general issues of concern, and monetary transactions.

354 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION