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This Article examines our current scheme of bank regulation through an analysis of banks' securities activities -- how such activities are currently regulated and how they might be regulated in the future.

Part I summarizes the major restrictions on banks' securities activities, emphasizing recent regulatory initiatives aimed toward expanding banks' participation in the securities business.

Part II examines the application of the federal securities laws to banks' securities activities. (While banks enjoy some exemptions from the federal securities laws, they are subject to many of the most important provisions.) In addition, Part II sets forth the division of responsibility for administering the securities laws among the federal banking regulators and the SEC.

Part III analyzes the current paradigm of regulation of banks' securities activities and concludes that the current model combines elements of functional and institutional regulation in form. Yet, once actual bank securities activities are taken into consideration, the current model more closely resembles functional regulation and, therefore, can be designated "the functional equivalent to functional regulation."

Part IV evaluates the current model of regulation of banks' securities activities using the conventional understanding of the goals of the federal banking laws and the federal securities laws. This Part concludes that, given the current dimensions of actual bank securities activities, the incumbent model provides an acceptable compromise between the benefits of the functional model and those of the institutional model.

Part V considers the durability of our current system of regulation and proposals for reform which seek only to provide more pure functional regulation. Part V concludes that the current model will not endure in an era of expanded bank securities activities and financial market consolidation. Part V contends that a system of regulation which is divided by risk is better suited to the financial markets of the future.



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