Banking regulation is one of the important factors that helped establish the position of banks in the financial structure of the nation. The banking industry is treated as a matter of public interest, despite the fact that banks are operated for profit. The laws and regulations of banking extend to its various aspects, including who can open banks, what products can be offered and how banks can expand.
The regulation of banking is done for four important reasons:
- Protecting depositors
- Monetary and financial stability
- Efficient and competitive financial system
- Protecting consumer
Federal Banking Regulations
Protecting depositors is the primary objective of federal banking regulation. It provides a stable framework for making payments. A quality service at a competitive price is another aspect of banking that is regulated. Protecting the interests of consumers in various aspects of a banking relationship is another focus of federal banking regulation.
1. Regulatory agencies
Both state and federal statutory law regulate banking. All banks come under the supervision and regulation of their chartering authority, at either the state or federal level.
2. Comptroller of the Currency
The oldest of the bank regulatory agencies is the Office of the Comptroller of the Currency. It was established by the National Currency Act of 1863 and strengthened by the National Bank Act of 1864. The Comptroller is the primary supervisory agency for national banks and is a bureau of the Treasury Department. A single person appointed by the President to a five-year term heads the office. The headquarters is in Washington, D.C., and the Comptroller has six district offices.
3. Federal Reserve System
A seven-member Board of Governors, appointed by the President to 14-year terms, heads the Federal Reserve System, which was established in 1913 by the Federal Reserve Act. The President designates one governor as chairman with a four-year, renewable term. The Board of Governors is headquartered in Washington D.C., together with 12 Federal Reserve banks and 25 branches located throughout the country. The Federal Reserve System directly supervises state-chartered banks that choose to become members.
4. Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation directly supervises and examines insured state-chartered banks that are not members of the Federal Reserve System and was established by the Banking Act of 1933. The FDIC is an independent federal agency. Its main function is to insure deposits at commercial banks and thrift institutions.
5. Federal Financial Institutions Examination Council
The Financial Institutions Regulatory and Interest Rate Control Act of 1978 created the Federal Financial Institutions Examination Council. The council is composed of the Comptroller of the Currency, one governor of the Federal Reserve System, the director of the Office of Thrift Supervision, and the chairmen of the FDIC and National Credit Union Administration Board. It was created to promote consistency in the examination and supervision of financial institutions.
6. State banking agencies
There is a regulatory agency in every state to charter and supervise state banks. In most states, the agency also supervises other financial institutions. Banks chartered by the state must follow all applicable state laws and regulations.
7. Other regulatory agencies
Other important state and federal agencies that may regulate commercial banks and banking organizations include the Justice Department, the Securities and Exchange Commission, the Office of Thrift Supervision and other thrift regulators, state insurance commissioners, and the Federal Trade Commission.
Federal Banking Commission
Most states have a federal banking commission that is responsible for the chartering and regulation of the state's banks and trust companies, as well as registration / licensing of various financial institutions like consumer finance companies, mortgage bankers and brokers, money transmitters, etc.
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