Banking Regulations and Regulatory Bodies

Banking careers are some of the most highly regulated jobs in the United States. Many different but related regulatory bodies and agencies oversee the banking and thrift industry in the US. These begin with the Federal Reserve Bank , which is the Central Bank of the U.S. Treasury, known as the “Fed”. Other regulatory bodies are the Federal Deposit Insurance Corporation (FDIC ), the Comptroller of the Currency of the United States Treasury (OCC ), and the National Credit Union Share Insurance Fund (NCUSIF ). State and local banks are chartered by the states but can be overseen by both the FDIC and the Federal Reserve Bank. Of course, things are always changing in the banking industry, as there are always new rules and regulations being promulgated, such as the 1998 Homeowners Protection Act, which regulages mortgage insurance.

The Federal Reserve Bank is a uniquely structured central bank, with some private and some public aspects. Established by Congressional law, the Federal Reserve Bank was set up to both conduct national monetary policy and regulate banks, along with offering various financial services to the U.S. government, private depository institutions, and foreign official financial institutions. Through these roles, the Federal Reserve Bank works to maintain the stability of the United States financial system, and ultimately, its economy. The Federal Reserve Bank, as a central bank, is also unique in that it regulates and monitors the currency, which is created by a totally separate entity, namely, the United States Treasury.

The Federal Reserve Bank (the Fed) is made up of 12 district banks across the country. The districts were formed when the Federal Reserve Bank was created in 1913 with the enactment of the Federal Reserve Act. Private member banks elect the members of the Board of Directors for the district’s or region’s Federal Reserve Bank. The members of the Board of Governors of the Federal Reserve Board are appointed by the President of the United States, and are confirmed by the Senate of the United States. The Federal Reserve Board and Banks are not funded by congressional monies or taxes. The majority of its revenues (90%) come from interest on and sales of U.S. Treasury securities held in their reserves portfolio. The balance comes from charges earned from financial services offered to their member banks.

The Federal Reserve Bank’s charter stipulates that the Fed is independent of U.S. government in that “its decisions do not have to be ratified by the President” or by anyone else “in the executive or legislative branches of government”. Nevertheless, the Fed authority to operate was given to it by Congress and the Fed can be subject to the laws ratified by Congress and also the vagaries of political appointees.

During the second half of the 19th century and the first few years of the 20th century, the U.S. banking system was very chaotic. While national banks did exist, a true central bank structure did not exist, nor was there much government oversight. The bank panics of 1873, 1893, and 1907 forced the U.S. government to study the different types of centralized, public, and private banking systems of both Europe and North America. The result was the Federal Reserve Bank system set up by the Federal Reserve Act of 1913, primarily a centralized bank, created to reform the banking system and control currency fluctuations. However, the Act also provided the impetus for an “elastic” currency and a method of liquidity for member banks, both of which worked to stabilize the currency, the banking system, and the economy.

Banking Regulations and Regulatory Bodies

The Federal Reserve Bank serves as the Central Bank for the U.S. Treasury. The U.S. Treasury holds an account with the Fed and all monies paid to the Treasury and all payments made by the Treasury are cleared by the Fed bank. The Fed also conducts the nation’s monetary policy and manages the country’s money supply and the stability of the financial system by responding to currency and liquidity needs and being the lender of last resort. The Federal Reserve Bank provides financial services as a clearing house to depository institutions, foreign institutions, and the U.S. Government. A main purpose of the Fed is to strengthen the standing of the global financial position of the United States. Therefore the Federal Reserve Bank strives to keep a regulatory balance between private banks and the responsibility of the U.S. government by supervising the banking firms under its jurisdiction and also by helping to protect consumers’ credit rates. This regulatory balance helps to limit systemic financial risk within the various markets in the U.S. In addition, the Federal Reserve Bank supervises approximately 900 state member banks and over 5000 bank holding companies, or company-controlled banks, which are institutions that are not supervised by other federal regulatory entities overseeing national banks, credit unions, and savings and loans, or thrift banks.

In 2009 the Federal Reserve transferred a record amount of cash, $45 billion dollars, to the U.S. Treasury, to stave off U.S. economic catastrophe. It also guaranteed a loan of $85 billion dollars in 2008 to halt the impending bankruptcy of American International Group (AIG), an international insurance company that was said to be “too big to fail”. Certain economists studying the Wall Street collapse of 1929, and the ensuing Depression, stated that the refusal of the Federal Reserve Bank at the time to transfer funds to the U.S. Treasury, or to loan funds to collapsing banks, caused the subsequent Depression. Since that time, Congress has acted swiftly to make certain that another similar collapse and loss of banking stability will never happen again.

The Federal Deposit Insurance Corporation (FDIC) insures the deposits of up to $250,000 per depositor’s account held at banks that have purchased FDIC insurance for their deposit customers. The FDIC also works towards the stability of the banking industry and economy of the United States as well as compliance with fair credit regulations and the Community Reinvestment Act (CRA) by monitoring and supervising insured banks’ and savings and loans’ management. With the Savings and Loan collapse in the late 1980’s and early 1990’s and the failure of the Federal Savings and Loan Insurance Corporation (FSLIC), the FDIC now also insures Savings and Loan institutions.

The FDIC employs many highly educated and experienced banking professionals. Careers include compliance and bank examiners, financial analysts and economists, and various information technology experts. Most positions require a four-year degree in business, finance, accounting, computer science and/or technology, along with experience in these fields.

Compliance examiners conduct various audits or examinations and investigations within the insured banks to protect the consumer from unfair trade practices, loss of civil rights, and the bank’s or savings and loan’s compliance with fair lending laws and the Community Reinvestment Act.

FDIC bank examiners audit and review the insured financial firms to protect the consumer from unsafe banking procedures, illegal acts, and to ensure the firms’ compliance with banking regulations. These audits will also analyze the policies and procedures of the insured bank, its management and its general financial stability. If examiners’ reports determine that an insured bank’s or savings and loan’s reserves or operations are deficient, the FDIC will mandate corrective action. In the case of a serious deficiency or imminent failure, the FDIC will mandate and oversee the closure of the bank.

FDIC economists and financial analysts research and study all aspects of the banking industry, including regulations, statutes, and deposit insurance. They also publish reports on the economic impact of various banking practices, legislation, capital risk management, and the financial markets. These types of banking careers at the FDIC can also include analysts, fraud and compliance investigators, administrative and management positions.

Information technology has become an extremely important aspect of banking, particularly since the advent of Automated Teller Machines (ATMs) and global banking. Prior to the explosion of the Internet in the 1980’s and 90’s, banking records and transactions were handled almost entirely on paper. Today, banking is almost fully automated. The FDIC technology experts focus on both security and anti-fraud systems for the automated activities of banks, as well as the development of better automation applications and practices.

The FDIC has many employment and intern opportunities for both academicians and college students, undergraduate and as well as graduate, particularly law school graduates. Current students in any subject field can apply under either the STEP program (the Student Temporary Employment Program) or the SCEP (the Student Career Experience Program). Law school students can apply to the Summer Legal Intern Program. Law school graduates can apply to the FDIC’s Honors Attorney Program. All programs were developed in order to attract high performing students and graduates to the FDIC before and after graduation, and to offer the student and graduate an experience working within a government regulatory arm before deciding on a permanent career. Banking careers can range from work-study periods during the student’s university study term, to fulltime summer jobs that can continue throughout the college year or that can become permanent. Professors or academicians can be appointed to the FDIC as Visiting Academic Fellows (VAF) for a specific time period and for a specific research subject relating to the banking industry, or to proposed or existing legislation. Visiting Academic Fellows offer the FDIC highly educated and knowledgeable research resources outside of government. FDIC economists and VAF professors study and publish theoretical financial models to project, enhance, support or direct FDIC operations with regard to banking and consumer protection.

Credit Unions’ deposits are insured by a similar regulatory body, the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF was formed by Congress in 1970 in order to insure the deposits of credit union “members”. It is governed by the National Credit Union Association itself, but the insurance, like the FDIC, is backed by the full faith and credit of the United States’ government.

The primary function of the Office of the Comptroller of the Currency (OCC) of the United States Department of the Treasury is to charter, regulate, and supervise all national banks in the United States. While the OCC is a federal regulatory arm, the agency is not funded by Congress or by the federal government. The OCC is funded by assessments made on all the U.S. national banks as well as any investment income gained by the OCC, including U.S. Treasury securities. The Comptroller is appointed by the President of the United States with approval of the Senate, for a five-year term. The Comptroller directs all the OCC agency’s operations with regard to all national banks’ compliances with banking laws that regulate fair practices for consumers and fair access to credit and financial products, as well as safe and sound business procedures and operations. The Comptroller also sits on the board of the Federal Deposit Insurance Corporation.

The Office of the Comptroller of the Currency has the regulatory power to examine and approve or deny a new charter for a new national bank, branch, or any requested changes in a bank’s corporate structure. As such, the OCC can revoke a charter, remove an officer or director, or issue a cease-and-desist order to a bank that has been found to be in noncompliance, and even order civil monetary penalties.

New Banking Regulations and their Implications for International Banking

Last updated: Oct 21, 2015 @ 6:27 pm