Ethan Riley
Banking in the United States is regulated at both the federal and state levels. Banks with a federal charter are regulated by federal agencies, while state-chartered banks are regulated by state agencies. The federal agencies involved in bank regulation include the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). State regulators, on the other hand, include state banking departments and state financial regulators, who are responsible for chartering, licensing, and supervising state-chartered banks and non-bank financial services providers. While the specific regulations may vary between states, the overall framework of banking regulation aims to ensure safe and sound banking practices, protect consumers, and promote economic growth within their communities.
| Characteristics | Values |
|---|---|
| Bank regulation in the US | Highly fragmented compared with other G10 countries |
| Number of bank regulators in the US | More than one |
| Regulatory authority | Federal and state level |
| Federal regulator examples | Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, Office of the Comptroller of the Currency |
| State regulator examples | Consumer Financial Protection Bureau (CFPB), Financial Crimes Enforcement Network, Federal Financial Institutions Examination Council |
| Federal regulator responsibilities | Supervision, issuing cease-and-desist orders, revoking membership, levying fines |
| State regulator responsibilities | Chartering, licensing, supervision, enforcing sanctions, issuing branch and merger applications |
| State regulator focus | Non-bank lending institutions |
| State-level legislative topics | Digital currency, regulatory sandboxes, blockchain technology, anti-money laundering, cannabis and hemp |
| State-level control | ATM placement, security requirements, accessibility, fees |
| State-level initiatives | Elder financial abuse prevention, employee training, reporting requirements |
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What You'll Learn
Federal vs state regulation
Bank regulation in the United States is highly fragmented compared to other G10 countries, where most countries have a single bank regulator. In the US, banking is regulated at both the federal and state levels, with banks falling under the supervision and regulation of their chartering authority. Banks must obtain a bank charter before conducting business in the US, and there are many different charters available, each with different financial powers as prescribed by state and federal laws. The principal categories of banks in the US include national banks, state member banks, and state non-member banks.
The chartering agencies ensure that new banks have the necessary capital and management expertise to meet the public's financial needs. The charterer is an institution's primary regulator, with the duty to protect the public from unsafe and unsound banking practices. They conduct on-site examinations to assess banks' conditions and monitor compliance with banking laws.
A bank's primary federal regulator could be the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or the Office of the Comptroller of the Currency (OCC). The FDIC provides federal insurance of deposits at commercial banks, and nearly all banks are FDIC-insured. The Federal Reserve System has 12 districts, each carrying out the Federal Reserve Board's regulatory responsibilities. The OCC is the primary supervisory agency for national banks, savings associations, and federal branches of foreign banks.
State-chartered banks are subject to the regulation of the state regulatory agency of the state in which they were chartered. 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.
State legislatures have also taken differing approaches to help banks combat elder financial abuse through employee training, reporting requirements, and authority to implement account freezes or transaction holds. Additionally, some state legislatures have introduced resolutions calling for the restoration of Glass-Steagall, a law enacted in 1933 to protect depositors from losses by insolvent banks.
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Deposit insurance
To calculate specific deposit insurance coverage, individuals can use the FDIC's Electronic Deposit Insurance Estimator (EDIE). This tool helps determine the insurance coverage amount based on the type of accounts and ownership categories.
While most banks in the United States are FDIC-insured, some institutions, such as certain state-chartered or privately held banks, may not carry FDIC insurance. Therefore, it is important for customers to verify a bank's FDIC status before depositing funds by checking the bank's website or using the FDIC's BankFind tool.
In addition to FDIC-insured banks, some states, like Maryland, also have specific requirements for deposit insurance. For example, in Maryland, all banks are required to be federally insured by the FDIC, and credit unions must be federally insured by the National Credit Union Administration (NCUA) or have private share insurance.
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State-chartered banks
In the United States, banking is regulated at both the federal and state levels. Banks engaging in banking activities, including accepting deposits, must obtain a bank charter before conducting business. There are several different charters available, each with distinct financial powers as prescribed by state and federal laws.
The FDIC provides federal insurance of deposits at commercial banks. Deposit insurance is mandatory for Federal Reserve member banks and may be extended to non-member banks with the FDIC's approval. The FDIC is authorised to examine all banks with FDIC insurance. However, to prevent regulatory duplication, the FDIC only directly supervises and examines state-chartered banks that are not members of the Federal Reserve System. The FDIC also acts as a receiver for failed banks and administers deposit insurance funds.
The Federal Reserve directly supervises state-chartered banks that choose to become members. The Federal Reserve is also the primary supervisor of bank holding companies and financial holding companies. It has broad enforcement powers, including the authority to issue cease-and-desist orders, remove bank and holding company officers, levy fines, revoke membership, and order divestiture or termination of financial holding company activities.
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Foreign bank regulation
Bank regulation in the United States is fragmented, with banks being regulated at both the federal and state levels. Foreign banks can establish a presence in the US by obtaining authorization to operate various types of offices, depending on the activities they plan to conduct.
The Federal Reserve Board directly supervises state-chartered banks that choose to become members, as well as foreign banking offices and Edge Act corporations. The Federal Reserve is also the primary supervisor of bank holding companies and financial holding companies. It has broad enforcement powers, including the authority to issue cease-and-desist orders, remove bank and holding company officers, levy fines, revoke membership, and order divestiture or termination of financial holding company activities. The Federal Reserve also has 12 districts, each centered around a regional Federal Reserve Bank, that carries out regulatory responsibilities within its district.
The Office of the Comptroller of the Currency (OCC) is the primary supervisory agency for national banks, savings associations, and federal branches of foreign banks. The OCC is responsible for chartering national banks, reviewing branch and merger applications, implementing regulations, and examining and supervising all national banks.
The Federal Deposit Insurance Corporation (FDIC) provides federal insurance of deposits at commercial banks. Deposit insurance is mandatory for Federal Reserve member banks and may be extended to non-member banks with FDIC approval. The FDIC has the power to examine all insured banks and act as a receiver for failed banks.
The regulatory reforms implemented after the Global Financial Crisis (GFC) appear to have contributed to a significant reduction in foreign bank participation in US capital markets. In particular, two key regulatory capital-related requirements have raised significant barriers for foreign banks seeking to enter the US market. These requirements include ring-fencing and the maintenance of an additive capital cushion, as dictated by the Federal Reserve's supervisory stress test results.
The Basel III Endgame (B3E) rules focus on the capital and leverage ratios that banks must implement to cover the risk of asset value loss in another market downturn. While supporters of B3E argue that it will lead to better-capitalized banks that lend more in downturns and avoid irresponsible lending in good times, critics worry about its effect on the central role of US banks in the global financial system.
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Elder financial abuse
Banking in the United States is regulated at both the federal and state levels. Banks are subject to the regulatory authority of more than one bank regulatory agency. The primary federal regulators could be the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or the Office of the Comptroller of the Currency (OCC). The Federal Reserve System comprises 12 districts, each centred around a Federal Reserve Bank, which carries out regulatory responsibilities within its district.
State-chartered banks are subject to state regulatory agencies, 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.
Banks are required to comply with various regulations, including privacy, disclosure, fraud prevention, anti-money laundering, anti-terrorism, and anti-usury lending. Federal and state governments have implemented measures to address elder financial abuse, which is a growing concern, with losses amounting to billions of dollars annually.
To combat this issue, some states have enacted laws that allow banks and other financial institutions to temporarily freeze accounts or place holds on transactions when elder financial abuse is suspected. Additionally, states have implemented employee training, reporting requirements, and processes for contacting trusted third parties. The Senior Safe Act, signed into law in 2018, grants financial institutions immunity from privacy laws when disclosing information about elder financial exploitation to regulators and law enforcement, provided certain conditions are met. These measures aim to protect older adults from financial abuse and minimize the impact on their lives.
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Frequently asked questions
Yes, banking in the US is regulated at both the federal and state level. State regulators are responsible for chartering, licensing and supervising state-chartered banks and non-bank financial services providers.
A bank charter is a permission granted by a state or federal government that allows banks to operate within a state. The process of obtaining a bank charter can be lengthy and may take a year or more.
A state financial regulator ensures that banks and non-banks operating within a state do so in a safe and legal manner. They monitor the safety and soundness of chartered institutions and protect communities from illegal and predatory practices.
State banking regulations vary but may include laws related to ATMs, such as placement, security requirements, accessibility, and fees. States may also have laws related to elder financial abuse, digital currency, and the use of blockchain technology.
Federal banking regulations are standardized across the country. Examples include the Equal Credit Opportunity Act, which prohibits discrimination in lending, and the Truth in Lending Act, which promotes informed use of consumer credit.
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