1.3 Financial Institution Regulators

You may have seen or heard the term dual banking systemA system in which banks can be chartered by the federal government or state governments.. This refers to the fact that both the fifty state governments and the federal government issue bank charters for the need and convenience of their citizens. The federal government (Office of the Comptroller of the Currency) charters “national banks” and the state banking departments charter “state banks.” 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 a front-line duty to protect the public from unsafe and unsound banking practices. Chartering agencies conduct on-site examinations to assess a bank’s condition and monitor compliance with banking laws. They issue regulations, take enforcement actions, and close banks if they fail.

The Federal Deposit Insurance Corporation (FDIC)An independent agency created by the federal government to maintain stability and public confidence in America’s banking system. insures the deposits of banks up to a maximum of $250,000 per account holder. All states require newly chartered state banks to join the FDIC before they can accept deposits from the public. The FDIC is the federal regulator of state-chartered banks that do not belong to the Federal Reserve System. It cooperates with state banking departments to supervise and examine these banks, and it has considerable authority to intervene to prevent unsafe and unsound banking practices. The FDIC also has backup examination and regulatory authority over national banks and state-chartered banks that are members of the Federal Reserve System. The FDIC deals with failed banks by either liquidating them or arranging a merger between the failing bank and a sound bank.

The Federal Reserve SystemThe central banking system of the United States. (“the Fed”) is the central bank of the United States, headquartered in Washington, DC. It controls the flow of money in and out of banks by raising or lowering its requirements for bank reserves and by buying and selling government securities. It lends money to banks at interest rates (the discount rate) to help banks meet their short-term liquidity needs, and it is known as the “lender of last resort” for banks experiencing liquidity crises. Together, the FDIC and the Federal Reserve System form the federal safety net that protects depositors when banks fail. 

Membership in the Federal Reserve System is required for national banks and is optional for state banks, if they can meet the criteria of Federal Reserve membership. While many large state banks have become Fed members, most state banks have chosen not to join, largely due to the Fed’s stringent regulatory policies. The Federal Reserve is the federal regulator of state-chartered member banks, and it cooperates with state bank regulators to supervise these institutions. The Federal Reserve also regulates all bank holding companies.

The Office of the Comptroller of the Currency (OCC)An independent bureau within the U.S. Treasury Department that administers the federal banking system. charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks. It is an independent bureau of the U.S. Department of the Treasury. The OCC ensures that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. The agency takes supervisory actions against banks that do not comply with these statutes or that otherwise engage in risky practices.

The National Credit Union Administration (NCUA)A federal government-backed agency that is responsible for supervising and regulating federal credit unions, insuring deposits, and protecting credit union members. is an independent federal agency, founded in 1970, to regulate, charter, and supervise federal credit unions. It is the equivalent of the FDIC for credit unions. The mission of the NCUA is to ensure that the nation’s system of credit unions remains safe and sound. The NCUA insures the share draft accounts (deposits) of credit union members up to a maximum of $250,000 per account holder in all federal credit unions and the overwhelming majority of state-chartered credit unions.

The Securities and Exchange Commission (SEC) An independent agency of the U.S. federal government whose main purpose is to enforce the law against manipulation of the securities markets. is an independent U.S. federal agency created by Congress to regulate the securities markets. It was created in 1934 in the aftermath of the Wall Street Crash of 1929. The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. The SEC oversees securities exchanges, securities brokers and dealers, investment advisors, and mutual funds.