iPedia Free Information Center

Information about Bank Regulation

This article or section may deal primarily with the U.S. and may not present a worldwide view.


Bank regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines, aiming to uphold the soundness and integrity of the financial system.

General Principles of Bank Regulation

Banking regulations can vary widely across nations and jurisdictions. Most countries' bank regulations however address certain similar policy goals and requirements. This section of the article describes general principles of bank regulation throughout the world. The following sections address specific banking requirements in the United States and other countries.

Reserve requirement

Main article: Reserve requirement
The reserve requirement sets the minimum reserves each bank must hold to customer deposits and notes. This type of regulation has perhaps lost the role it once had in places like the United States. In 2004 deposits in United States banks were roughly $8 trillion while central bank "reserves of depository institutions" were less than $50 billion. This is because reserve requirements apply to just transaction deposits today.

Reserve requirements serve monetary policy goals by limiting the growth and supply of money. The higher a bank's reserve requirement is, the more money it must hold in reserve and thus cannot lend (which would thereby create new money). Reserve requirements also serve a safety and soundness role by acting as a cushion in case of a severe recession that leads to a "bank run." See the description of "Regulation D" above for more specific information on regulatory reserve requriements for US banks.

Capital requirement

Main article: Capital requirement
The capital requirement sets a framework on how banks and depository institutions must handle their capital in relation to their assets. Internationally, the Bank for International Settlements' Basel Committee on Banking Supervision influences each country's capital requirements. In 1988, the Committee decided to introduce a capital measurement system commonly referred to as the Basel Capital Accords. The latest capital adequacy framework is commonly known as Basel II. Most developed countries do not adjust the capital adequacy ratios to their yearly inflation rates, therefore eroding their lending capacity, year after year. This has promoted the growth of Junk Bonds, hedge funds and private equity as prime lenders, without the customary lending standards. Banks have redirected their dying business to services, high yield consumer credit, derivatives, closing credit departments and losing credit intelligence, now restricted to two firms, S&P and Moody's. Loans are not evaluated in terms of the % Cs of credit, but only on underlying Assets and the credit rating.

In the United States, "depository institutions" are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System (FRB).

Activity and Affiliation Restrictions

More coming later.

Payments Systems Requirements

More coming later.

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. [http://www.fsa.go.jp/en/index.html]

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). However. most banks have overdraft fees of at least $20, even for an overdraft as low as $1 and even if the overdraft is covered the next day, and a charge of $20 to borrow $1 for one day is seen by most as usury.

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, and 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.

State 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

Main article: 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)

Main article: Fair Credit Reporting Act


More coming later.

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. [2] Some state banking regulations also contain similar lending limits applicable to state-chartered banks. [3] 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)

More coming later.

Right to Financial Privacy Act

More coming later.

Sarbanes-Oxley Act of 2002

Main article: Sarbanes Oxley


More coming later.

USA PATRIOT Act

Main article: USA PATRIOT Act


More coming later.

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. [4][5][6]
Regulation B - Equal Credit Opportunity
Main article: Equal Credit Opportunity Act


More coming later.
Regulation C - Home Mortgage Disclosure Act (HMDA)
Main article: Home Mortgage Disclosure Act


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
Main article: Electronic Funds Transfer Act
Regulation F - Limitations on Interbank Liabilities
More coming later.
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. [7][8]
Regulation P - Privacy of Consumer Financial Information
More coming later
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 on withdrawal"-type checking accounts ("NOW accounts") offered to consumers and certain entities (but not commercial enterprises other than sole-proprietors). [9]
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
More coming later.
Regulation BB - Community Reinvestment Act (CRA)
Main article: Community Reinvestment Act
  • Insured depository institutions are required to reinvest in the communities they serve. There should be an emphasis on low to moderate income (LMI) neighborhoods.
  • Insured depository institutions must display a CRA notice
  • Each branch must have a current CRA public file. It must be shown upon request.
Regulation CC - Expedited Funds Availability Act
Main article: 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
Main article: 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.

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

See also

External links

Reserve requirements

Capital requirements

Agenda from ISO

Various Countries

Israel

 •  • [ e]
Law -
Legal subjectsConstitutional and Administrative law Criminal law Contract Tort Property Trusts and Equity Public international law Conflict of laws Supranational law
Further disciplinesLabour law Human rights Procedure Evidence Immigration law Family law Wills Commercial law Corporate law Intellectual property Unjust enrichment Restitution Tax law Banking law Competition law Consumer protection Environmental law Admiralty law Military law Product liability
Legal systemsCommon law Civil law Religious law Socialist law Comparative law
Legal theoryHistory of law Philosophy of law Economic analysis of law Sociology of law
Legal institutionsJudiciary Legislature Executive Military and Police Bureaucracy Legal profession Civil society
Motto
"In God We Trust"   (since 1956)
"E Pluribus Unum"   ("From Many, One"; Latin, traditional)
Anthem
..... Click the link for more information.
government is a body that has the power to make and the authority to enforce rules and laws within a civil, corporate, religious, academic, or other organization or group.[1]
..... Click the link for more information.
Regulation can be considered as legal restrictions promulgated by government authority. One can consider at least two levels in democracies -- legislative acts, and implementing specifications of conduct imposed by administrative agencies through rulemaking supported by a threat of
..... Click the link for more information.
bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit.
..... Click the link for more information.
An economy's financial system exists to organize the settlement of payments, to raise and allocate finance, and to manage the risks associated with financing and exchange.
..... Click the link for more information.
The reserve requirement (or required reserve ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes. These reserves are designed to satisfy withdrawal demands, and would normally be in the form of fiat currency stored in
..... Click the link for more information.
Bank reserves are banks' holdings of deposits in accounts with their central bank (for instance the European Central Bank or the Federal Reserve, in the later case called federal funds), plus currency that is physically held in bank vaults (vault cash).
..... Click the link for more information.
bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit.
..... Click the link for more information.
A deposit account is an account at a banking institution that allows money to be held on behalf of the account holder. Some banks charge a fee for this service, while others may pay the client interest on the funds deposited.
..... Click the link for more information.
A promissory note, also referred to as a note payable in accounting, is a contract detailing the terms of a promise by one party (the maker) to pay a sum of money to the other (the payee).
..... Click the link for more information.
Motto
"In God We Trust"   (since 1956)
"E Pluribus Unum"   ("From Many, One"; Latin, traditional)
Anthem
..... Click the link for more information.
A deposit account is an account at a banking institution that allows money to be held on behalf of the account holder. Some banks charge a fee for this service, while others may pay the client interest on the funds deposited.
..... Click the link for more information.
worldwide view.


In the United States transactions deposit is a term used by the Federal Reserve for checkable deposits and other accounts that can be used directly as cash without withdrawal limits or restrictions.
..... Click the link for more information.
bank run (also known as a run on the bank) is a type of financial crisis. It is a panic which occurs when a large number of customers of a bank fear it is insolvent and withdraw their deposits.
..... Click the link for more information.
The capital requirement is a bank regulation, which sets a framework on how banks and depository institutions must handle their capital. The categorization of assets and capital is highly standardized so that it can be risk weighted.
..... Click the link for more information.
A depository institution is a financial institution in United States, such as a savings bank, that is legally allowed to accept monetary deposits from consumers. Federal depository institutions are regulated by the Federal Deposit Insurance Corporation (FDIC).
..... Click the link for more information.
In economics, capital or capital goods or real capital refers to already-produced durable goods available for use as a factor of production. Steam shovels (equipment) and office buildings (structures) are examples.
..... Click the link for more information.
asset is meant probable future economic benefits controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained.
..... Click the link for more information.

Economic policy
Monetary policy
Central bank   Money supply
Fiscal policy
Spending   Deficit   Debt
Trade policy
Tariff   Trade agreement

Finance
Financial market
..... Click the link for more information.
The Basel Committee on Banking Supervision is an institution created by the central bank Governors of the Group of Ten nations . It was created in 1974 and meets regularly four times a year.
..... Click the link for more information.
19th century - 20th century - 21st century
1950s  1960s  1970s  - 1980s -  1990s  2000s  2010s
1985 1986 1987 - 1988 - 1989 1990 1991

Year 1988 (MCMLXXXVIII
..... Click the link for more information.
The Basel Accord(s) or Basle Accord(s) (see spelling section below) refers to the banking supervision Accords (recommendations on banking laws and regulations), Basel I and Basel II issued by the Basel Committee on Banking Supervision (BCBS).
..... Click the link for more information.
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II is to create an international standard that banking regulators can use when creating
..... Click the link for more information.
In financial economics, a financial institution acts as an agent that provides financial services for its clients. Financial institutions generally fall under financial regulation from a government authority.
..... Click the link for more information.
Federal Reserve System

Seal The Federal Reserve System Eccles Building (Headquarters)
Headquarters Washington, D.C.
..... Click the link for more information.
    The Group of Ten or G10 refers to the group of countries that have agreed to participate in the General Arrangements to Borrow (GAB). The GAB was established in 1962, when the governments of eight International Monetary Fund (IMF) members—Belgium, Canada,
    ..... Click the link for more information.
    Usury (/'juʒ(ə)ɹi/, from the Medieval Latin usuria, "interest" or "excessive interest", from Latin usura "interest") was defined originally as charging a fee for the use of money.
    ..... Click the link for more information.
    Usury (/'juʒ(ə)ɹi/, from the Medieval Latin usuria, "interest" or "excessive interest", from Latin usura "interest") was defined originally as charging a fee for the use of money.
    ..... Click the link for more information.
    The Federal Deposit Insurance Corporation (FDIC) is a created by the Glass-Steagall Act of 1933. The vast number of bank failures in the Great Depression spurred the United States Congress into creating an institution which would guarantee deposits held by commercial banks,
    ..... Click the link for more information.
    Federal Reserve System

    Seal The Federal Reserve System Eccles Building (Headquarters)
    Headquarters Washington, D.C.
    ..... Click the link for more information.


    This article is copied from an article on Wikipedia.org - the free encyclopedia created and edited by online user community. The text was not checked or edited by anyone on our staff. Although the vast majority of the wikipedia encyclopedia articles provide accurate and timely information please do not assume the accuracy of any particular article. This article is distributed under the terms of GNU Free Documentation License.
    Herod_Archelaus


    page counter