Banking regulation and supervision

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.

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. 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, 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. In addition, there are 50 state regulatory bodies which regulate and supervise bank's chartered by the laws of their respective state.

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).

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.

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. [1][2][3]

Regulation BB - Community Reinvestment Act (CRA)

Main article: Community Reinvestment Act

• Financial institutions are required to reinvest in the communities they serve. There should be an emphasis on low to moderate income (LMI) neighborhoods.
• Financial institutions must display a CRA notice
• Each branch must have a current CRA public file. It must be shown upon request.

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 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 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 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.

• Part 230 -- Truth in Savings (pdf)

Regulation E - Electronic Funds Transfer Act

Main article: Electronic Funds Transfer Act

Regulation O - Loans to Insiders

Regulation O establishes varying qualitative 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). [4][5]

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). [6]

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.

The reason for these reserves are both to put a limit on how much the supply of deposits (money and credit) can grow. They also work as a cushion in case of a severe recession that leads to a "bank run."

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's 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.

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).

See also

• Anti-money laundering
• Financial regulation
• ISO 19092
• ISO 4217
• ISO 6166
• ISO 8109
• ISO 9362
• ISO 10962
• ISO/IEC 15944
• Know your customer
• Monetary policy
• Money market
• Risk adjusted assets (risk weighted assets)

External links

Reserve requirements

• Reserve Requirements - Fedpoints - Federal Reserve Bank of New York

Capital requirements

• Basel II: Revised international capital framework
• FDIC: Risk - Based Assessment System
• Risk-weighted assets

Agenda from ISO

• ISO/TR 17944