Introduction
This paper is divided into three parts. The first part provides answers to questions regarding the Cipollone versus Liggett Group case, the second part discusses the role and functions of law in the banking industry, and the third part looks at future changes about the law in the banking industry.
Answers to Questions on Cipollone versus Liggett Group Case
In my view, the language of the Supreme Court points to the fact that Congress’s preemption power is broad. First, the Court sets the record straight by recognizing that the laws of the United States are superior to any other. The preemption doctrine derives from the Supremacy of the US Constitution which provides that the laws of the United States are supreme, and judges in every land shall be bound by them.
I do not think that the Supreme Court’s ruling stops anyone from seeking justice against tobacco companies that provide false or incomplete information regarding their products. In my view, the ruling serves to enlighten New Jersey residents. In the future, it will be necessary for any petitioner to ensure that cases presented before the court are supported by strong evidence.
The preemption must have arisen from the claim by the Supreme Court that any petitioner must show that the cigarette manufacturer’s advertisements and promotions should have included additional, and more clearly stated warnings. In my judgment, Congress should repeal the existing statute preempting state tobacco regulation of advertising and promotion based on smoking and health. Instead, it should enact a new provision that precludes all direct state regulation only about tobacco product characteristics and packaging while allowing complementary state regulation in all other domains of tobacco regulation, including marketing and distribution.
Role and Functions of Law in the Banking Industry
Law has many functions in the banking industry including monitoring approvals and upholding operational standards. These roles and others are discussed as follows.
Approval of Banks
According to Northrup (2003), the establishment of commercial banks is subject to the approval of banking regulatory bodies. An applicant is required to meet set standards before gaining approval. Upon endorsement, the commercial bank is issued with a business license to enable commence operations. Generally, commercial banks are expected to use their licenses as stipulated as provided by law.
Commercial Banks Operational Standards
In general, the key operating standard for financial institutions under the banking law is to closely examine the creditworthiness of borrowers and to implement collection procedures to ensure the recovery of loans on time. By law, banks are protected in their efforts to recover unpaid debts from borrowers. In the past, financial institutions had little leverage to force a powerful governmental enterprise to repay its loan obligations (Northrup, 2003).
As a result, many enterprises defaulted on their obligations, leaving the banks with large underperforming portfolios. Although commercial banks have the discretion to operate their loan facilities, they are required to adhere to different guidelines set by regulatory bodies. In the course of carrying out their business operations, all financial institutions are required by law to avoid unfair rivalry and to deal fairly with competitors.
Other Roles and Functions of Law in Banking
Besides the roles discussed in the preceding section, commercial banks are also required to comply with the following legal requirements.
Rules for Loan Contracts
As a rule, commercial banks are required to fully evaluate loan contracts to establish whether stipulated conditions have been met by applicants. A bank has the discretion to ask a borrower to provide a guarantee secured by a mortgage or pledge of property. If a borrower is in default of a loan, a commercial bank has a right to sell the secured property to satisfy the debt due. In addition, the interest rates charged by a bank are required to be consistent with the upper and lower limits set by regulatory authorities.
Protection for Depositors
Commercial banks are required to operate in compliance with several principles when dealing with customer deposits. Confidentiality standards provide that, except when required by law, a commercial bank may refuse to allow third person information concerning the accounts of individuals and entities with the bank. Also, banks are required to set and publish the deposit interest rates by the standards set by the regulatory bodies.
Records, Accounting, and Reporting
Commercial banks are required to maintain financial statements, loan application files, loan agreements, and other documents and records concerning the bank’s operations. Every banking institution is required to publicly disclose information regarding its business operations a few months before any financial year comes to an end.
Bank Employee Standards
The employees of a commercial bank are required to abide by the law and regulations applicable to banking operations. They are prohibited from engaging in unlawful activities such as using their professional positions to extort money from the public, embezzling funds of the bank or its customers, showing favoritism when granting loans, and engaging in any other activities that violate the law, administrative regulations, and standards. Any employee who engages in any of these activities is subject to administrative penalties, criminal penalties, and civil liability.
Online Banking Measures
Any banking institution that offers online services is by law required to make a formal application for approval (Northrup, 2003). The online banking measures outline the statutory requirements that must be met by financial institutions to ensure the management of risks associated with online banking services. All online banks must take proper security measures such as encrypting transactions, effectively guarding against unlawful access to key equipment, and protecting customers’ right to privacy. Banks that fail to meet the stipulated requirements may be subjected to various administrative penalties.
Money Laundering Prevention
The anti-money laundering laws require banks to know their customers and specifically expect financial institutions to examine for authenticity and legality documents presented by customers seeking banking services, regardless of whether they are individuals, corporations, or other entities.
Future Changes about Law in the Banking Industry
As technological advancements continue globally, the banking sector will be faced with more challenges that require strong laws to be in place to ensure the smooth delivery of services. In every way, the confidence of banking institutions and their customers must not be eroded. The continued growth of online banking, for example, presents serious challenges to banking institutions that must be effectively addressed by legal entities. Strong legislation must, therefore, be enacted to guard banks and their customers against criminal activities targeted at online banking and eCommerce services.
Reference
Northrup, C. C. (2003). The American Economy. Santa Barbara, California: ABC-CLIO.