BANKING REGULATION

Banking is one of the most heavily regulated industries in the United States, and the regulatory structure is quite complex. This owes in part to the fact that the United States has a dual banking system. A dual banking system means that banks and thrifts can be chartered and therefore regulated either by the state in which they operate or by a national chartering agency.

The Office of the Comptroller of the Currency (OCC) in the U.S. Department of Treasury is the federal chartering agency for national banks. The Office of the Comptroller of the Currency provides general supervision of national banks, including periodic bank examinations to determine compliance with rules and regulations and the soundness of bank operations. The Office of Thrift Supervision (OTS) in the Treasury Department charters national savings and loans (SLAs) and savings banks.

The agencies that insure deposits in banks and thrifts also have a role in regulating them. Almost all banks and thrifts are federally insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures each depositor (not each separate deposit) for up to $100,000 in each bank or thrift in which the depositor has deposits. The Bank Insurance Fund (BIF) in the FDIC insures commercial bank and savings bank deposits. The Savings Association Insurance Fund (SAIF) in the FDIC insures savings and loan deposits. The National Credit Union Share Insurance Fund (NCUSIF) in the National Credit Union Association (NCUA) insures credit union deposits.

The Federal Reserve is also responsible for regulating commercial banks that are members of the Federal Reserve System and bank holding companies. As a result, a nationally chartered, federally insured, Federal Reserve member bank is subject to the regulations of the OCC, BIF, and the Federal Reserve.

The regulatory landscape is complicated further by the fact that state banking authorities regulate state-chartered banks and frequently conduct their own examinations of state banks. To help sort out the maze of potential regulators, banks are assigned one regulator with primary responsibility for examining the bank. The primary regulator of nationally chartered banks and thrifts is the OCC. The primary regulator of state-chartered banks that belong to the Federal Reserve is the Federal Reserve. The primary regulator of state-chartered banks that are not Fed members but are FDIC insured is the FDIC, while the primary regulator of state-chartered, noninsured banks is the state.

The regulatory agencies also enforce legislation passed by the U.S. Congress. Such legislation attempts to ensure that lending institutions act fairly and that bank customers are well informed about banking services and practices. For example, the Truth-in-Lending Act (1968) and the Fair Credit and Charge Card Disclosure Act (1988) require lenders to disclose the true interest rate on loans on a uniform basis so that borrowers know the true cost of credit.

The Fair Housing Act (1968) and the Equal Credit Opportunity Act (1976) prohibit discrimination against borrowers on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. The Community Reinvestment Act (1977) requires banks, savings and loans, and savings banks to meet the credit needs of their local communities. This act was intended to prevent banks located in low-income areas from refusing loans to local residents, who were often members of minority groups. The Truth-in-Savings Act (1991) mandates uniform disclosure of the terms and conditions that banking institutions impose on their deposit accounts so that depositors know the true interest rate they receive on their deposits.