What Are The Federal Banking Regulations?

Federal banking regulations are in place to protect the interest of the public. Banking regulators audit, examine and investigate banks and provide information to various government agencies in order to ensure that the banking system is working and to avoid and catastrophic situations from occurring.

The bank failures and near collapse of the financial markets in the fall of 2008 has renewed calls for strengthening Federal banking regulations. Although there is no national bank in the United States, the Federal government plays an important role in providing liquidity to the markets and encouraging lending activities. When banks do not function properly, it threatens the entire economy.

Federal banking regulations came about in the mid 1930s through passage of the Banking Act of 1935. The specific banking regulations that govern banks are described in general below. More specific regulations, which are created by the various regulatory agencies, can be found online.

Banking Act of 1935

One of the regulations that came out was the Banking Act of 1935. This law created the Federal Depository Insurance Corporation (FDIC), a government agency that is empowered to require banks pay an assessment. The assessments are held in a fund that helps protect a bank customer’s assets when a bank fails.  

The legislation also created a series of regulators who were given the power to examine banks and take enforcement actions including seizing a bank, when it violates the law. The agencies that were created include the Office of Thrift Supervision (OTS), Office of the Comptroller of Currency (OCC) and FDIC.

Responsibilities of Federal Banking Regulators

The OTS, OCC and FDIC each are responsible for auditing and examining the banking activities of banks. Each agency sets requirements for banks who are members of one of the organizations or has access to the Federal Reserve System. The regulators test banks capital positions to ensure that they are adequate to meet the needs of customers who seek to close out their accounts.

Other Banking Regulations

Other banking regulations deal with the amount of capital that a bank is required to maintain. This is known as a bank’s net capital reserve requirements. Banking regulators from the various banking regulatory oversight bodies (i.e. OTS, OCC and FDIC) check this requirement whenever they perform an audit of a member financial institution.

A strong system of banking regulations on the Federal level helps prevent problems from occurring and keeps our market system strong. Strengthening banking regulations and empowering regulators with the ability to protect the public makes banks stronger.