Bank regulation in the United States

Bank regulation in the United States

Bank regulation in the United States is highly fragmented compared to other G10 countries where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on a banking organization's charter-type and organizational structure, it may be subject to numerous federal and state banking regulators. Unlike Japan and the United Kingdom, where regulatory authority over the banking, securities and insurance industries is combined into one single financial services agency, the U.S. maintains separate securities, commodities, and insurance regulatory agencies (which are separate from the bank regulatory agencies) at the federal and state level as well. [] []

The U.S also has one of the most highly regulated banking environments in the world; however, many of the regulations are not safety and soundness related, but are instead focused on privacy, disclosure, fraud prevention, anti-money laundering, anti-terrorism, anti-usury lending, and promoting lending to lower-income segments. Even individual cities enact their own financial regulation laws (for example, for usury lending).

Federal Regulatory Agencies

A bank's primary federal regulator could be the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, or the Office of Thrift Supervision. And within the Federal Reserve Board, there are 12 districts centered around 12 regional Federal Reserve Banks, each of which carries out the Federal Reserve Board's bank regulatory responsibilities in its respective district. Credit Unions in the United States are subject to certain similar bank-like regulations and are supervised by the National Credit Union Administration.

tate Regulatory Agencies

State-chartered banks are also subject to the regulation and supervision of the state regulatory agency of the state in which they were chartered. State regulation of state-chartered banks applies in addition to federal regulation. For example, a California state bank that is not a member of the Federal Reserve System would be regulated by both the California Department of Financial Institutions and the FDIC. Likewise, a Nevada state bank that is a member of the Federal Reserve System would be jointly regulated by the Nevada Division of Financial Institutions and the Federal Reserve.

Federal Laws and Regulations

This portion of the article focuses on federal banking laws and regulations. State banking laws also apply to state-chartered banks and certain nonbank affiliates of federally-chartered banks.

Bank Secrecy Act

The Bank Secrecy Act (or BSA) requires financial institutions to assist government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (or FCRA) regulates the collection, sharing, and use of customer credit information. The act allows consumers to obtain a copy of their credit report records from Credit bureaus that hold information on them, provides for consumers to dispute negative information held, and sets time limits after which negative information is suppressed. It requires that consumers be informed when negative information is added to their credit records, and when adverse action is taken based on a credit report.

Lending Limits

Lending limit regulations restrict the total amount of loans and credits that a bank may extend to a single borrower. This restriction is usually stated as a percentage of the bank's capital or assets. For example, a national bank generally must limit its total outstanding loans and credits to any single borrower to no more than 15% of the bank's total capital and surplus. [] Some state banking regulations also contain similar lending limits applicable to state-chartered banks. [] Both federal and state laws generally allow for a higher lending limit, up to 25% of capital and surplus for national banks, when the portion of the credit that exceed the initial lending limit is fully secured.

Pass Through Insurance (PTI)

Right to Financial Privacy Act

arbanes-Oxley Act of 2002


Federal Reserve regulations

Regulation A - Extensions of Credit by Federal Reserve Banks

This regulation establishes rules regarding extensions of credit made by a Federal Reserve Bank to banks and other institutions (i.e., "discount window lending"). The Federal Reserve Board made significant amendments to Regulation A in 2003 including amendments to price certain discount window lending at above-market rates and to restrict borrowing to banks in generally sound condition. In amending the regulation, the Federal Reserve Board noted that many banks had expressed their unwillingness to use discount window borrowing because their use of such a funding source was interpreted as sign of the bank's financial weakness or distress. The Federal Reserve Board indicated its hope that the 2003 amendments would make discount window lending a more attractive funding option to banks. [] [] []

Regulation B - Equal Credit Opportunity

The Equal Credit Opportunity Act (ECOA) states that creditors which regularly extend credit to customers, which includes banks, retailers, finance companies, and bankcard companies, should evaluate candidates on credit worthiness alone, rather than other factors- race, color, religion, national origin or sex. Discrimination on marital status, welfare recipience, and age is generally prohibited with exceptions, as is discrimination based on a consumer's good faith exercise of their credit protection rights.

Regulation C - Home Mortgage Disclosure Act (HMDA)

The HMDA requires financial institutions to maintain and annually disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings. It also requires branches and loan centers to display an HMDA poster.

Regulation D - Reserve Requirements for Depository Institutions

*Establishes reserve requirement guidelines.
*Regulates certain early withdrawals from certificate of deposit accounts.
*Defines what qualifies as DDA/NOW accounts. See Reg. Q to see eligibility rules for interest-bearing checking accounts.
*Defines limitations on certain withdrawals on savings and money market accounts.
**Unlimited transfers or withdrawals if made in person, by ATM, by mail, or by messenger.
**In all other instances, there is a limit of six (6) transfers or withdrawals. No more than three (3) of these transactions may be made payable to a third party (by check, draft, point-of-sale, etc.).
**Some banks will charge a fee with each excess transaction
**Bank must close accounts where this transaction limit is constantly exceeded

Regulation E - Electronic Funds Transfer Act

Regulation F - Limitations on Interbank Liabilities

Regulation O - Loans to Insiders

Regulation O establishes varying quantitative and qualitative limits and reporting requirements on extensions of credit made by a bank to its "insiders" or the insiders of the bank's affiliates. The term "insiders" includes executive officers, directors, principal shareholders and the related interests of such parties. [] []

Regulation P - Privacy of Consumer Financial Information

Regulation Q - Prohibition Against Payment of Interest on Certain Deposit Account Types

Regulation Q prohibits banks from paying interest on demand deposit accounts. A "demand deposit" account includes many, but not all checking accounts. Banks, however, may pay interest on Negotiable Order of Withdrawal accounts ("NOW accounts") offered to consumers and certain entities (but not commercial enterprises other than sole-proprietors). [ [] ]

Regulation W - Transactions Between Member Banks and Their Affiliates

Regulation W establishes quantitative and qualitative requirements for loans, purchases of assets, and other transactions between banks and their affiliates. The term "affiliate" is broadly defined and includes parent companies, companies that share a parent company with the bank, companies that are under other types of common control with the bank (e.g. by a trust), companies with interlocking directors (a majority of directors, trustees, etc. are the same as a majority of the bank's), subsidiaries, and certain other types of companies.

Regulation AA - Unfair or Deceptive Acts or Practices

Regulation BB - Community Reinvestment Act (CRA)

*Insured depository institutions are required to reinvest in the communities they serve. There should be an emphasis on low- and moderate- income (LMI) census tracts and individuals.
*Insured depository institutions must display a CRA notice
*Each branch must have a current CRA public file or access to it via the company's intranet. The bank has 10 days to provide the information to you in person or via mail.

Regulation CC - Expedited Funds Availability Act

*Defines when standard holds and exception holds can be placed on check deposits, and defines the maximum length of time the money can be held.
**Deposits made in person and meeting certain requirements must be made available by the next business day.
**$100 from each deposit on hold is immediately available
**Standard holds
***The first $4,900: 2 business days
***The remaining amount over $5,000: 7 business days
**Exception Holds
***The first $4,900: 5 business days
***The remaining amount over $5,000: 11 business days
**Special Check Deposits, including guaranteed items such as cashiers checks
***The first $5,000 must be made available immediately

*A bank's hold policy can be less stringent than the guidelines outlined in Reg. CC, but it cannot exceed the guidelines.

Regulation DD - Truth in Savings Act

The purpose of this part is to enable consumers to make informed decisions about accounts at depository institutions. This part requires depository institutions to provide disclosures so that consumers can make meaningful comparisons among depository institutions. This regulation is not applicable to credit unions.
* [ Part 230 -- Truth in Savings (pdf)]

Preemption of state banking laws

By statute and judicial interpretation of statutes and the United States Constitution, federal banking statutes and the regulations and other guidance issued by federal banking regulatory agencies often preempt state laws that would regulate certain activities of nationally chartered banking institutions and their subsidiaries. Specific exceptions to the general rule of federal preemption exist, e.g. some contract law, escheat law, and insurance law.

OTS Preemption of State Law

Fiduciary Activities of Savings and Loans, or Thrifts

One example of OTS Preemption begins with Section 550.136(a) of the OTS Regulations, providing that “. . . OTS occupies the field of the regulation of the fiduciary activities of Federal savings associations . . .. Accordingly, Federal savings associations may exercise fiduciary powers as authorized under Federal law, including this part, without regard to State laws that purport to regulate or otherwise affect their fiduciary activities, except to the extent provided in 12 U.S.C. § 1464(n) . . . or in paragraph (c) of this section.” 12 U.S.C. § 1464(n), authorizes fiduciary activities for federal savings associations, and specifies certain state law requirements that are applicable to federal savings associations. Section 550.136(c) lists six types of state laws that in certain specified circumstances are not preempted with respect to Federal savings associations


ee also

* Bank regulation

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