Who regulates commercial banks?
The Federal Reserve is responsible for supervising--monitoring, inspecting, and examining--certain financial institutions to ensure that they comply with rules and regulations, and that they operate in a safe and sound manner.
There are numerous agencies assigned to regulate and oversee financial institutions and financial markets in the United States, including the Federal Reserve Board (FRB), the Federal Deposit Insurance Corp. (FDIC), and the Securities and Exchange Commission (SEC).
Share This Page: The Office of the Comptroller of the Currency (OCC) is an independent bureau of the U.S. Department of the Treasury. The OCC charters, regulates, and supervises all national banks, federal savings associations, and federal branches and agencies of foreign banks.
The Federal Reserve directly supervises state-chartered banks that choose to become members as well as foreign banking offices and Edge Act corporations. The Federal Reserve is also the primary supervisor and regulator of bank holding companies and financial holding companies.
A central bank is the institution that manages the monetary system within a country by creating monetary policies, regulating commercial banks, and providing financial services. In the United States, the central bank is called the Federal Reserve.
Insured Commercial Banks
Commercial banks insured by the FDIC. These institutions are regulated by one of the three Federal commercial bank regulators (FDIC, Federal Reserve Board or Office of the Comptroller of the Currency).
Federal Reserve Banks are often called the "bankers' banks" because they provide services to commercial banks similar to the services that commercial banks provide for their customers. Federal Reserve Banks distribute currency and coin to banks, lend money to banks, and process electronic payments.
On a macro basis, central banks influence interest rates and participate in open market operations to control the cost of borrowing and lending throughout an economy. Central banks also operate on a micro-scale, setting the commercial banks' reserve ratio and acting as lenders of last resort when necessary.
Several different regulatory bodies exist from the Federal Reserve Board which oversees the commercial banking sector to FINRA and the SEC which monitor brokers and stock exchanges.
Laws & Regulations Overview
The OCC is the primary regulator of banks chartered under the National Bank Act (12 USC 1 et seq.) and federal savings associations chartered under the Home Owners' Loan Act of 1933 (12 USC 1461 et seq.).
Does the Fed regulate banks?
Bank holding companies constitute the largest segment of institutions supervised by the Federal Reserve, but the Federal Reserve also supervises state member banks, savings and loan holding companies, foreign banks operating in the United States, and other entities. international banking and financial business.
The Federal Trade Commission enforces a variety of antitrust and consumer protection laws affecting virtually every area of commerce, with some exceptions concerning banks, insurance companies, non-profits, transportation and communications common carriers, air carriers, and some other entities.
Cease and desist orders are typically the most severe and can be issued either with or without consent.
The most far reaching Wall Street reform in history, Dodd-Frank will prevent the excessive risk-taking that led to the financial crisis. The law also provides common-sense protections for American families, creating new consumer watchdog to prevent mortgage companies and pay-day lenders from exploiting consumers.
The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve controls the three tools of monetary policy--open market operations, the discount rate, and reserve requirements.
The 6 tools of monetary policy are reverse Repo Rate, Reverse Repo Rate, Open Market Operations, Bank Rate policy (discount rate), cash reserve ratio (CRR), Statutory Liquidity Ratio (SLR). You can read about the Monetary Policy – Objectives, Role, Instruments in the given link.
The main difference between the two is that a central bank is responsible for overall monetary and financial stability, whereas commercial banks focus on providing financial services to customers and making a profit.
As such, commercial banks are heavily regulated by a central bank in their country or region. For instance, central banks impose reserve requirements on commercial banks.
From cybersecurity crises to potential mergers that would reshape the payments industry, the banking world is poised for a year of change and regulatory challenges.
Mostly it deals with the management of deposits, lending activities, investments, bank capital, bank liquidity and off-balance sheet activities. It also covers the use of derivatives and asset backed securities such as credit derivatives etc. to manage the market risk.
Where do commercial banks keep their money?
Federal law sets requirements for the percentage of deposits a bank must keep on reserve, either at the local Federal Reserve Bank or in its own vault. Any money a bank has on hand after it meets its reserve requirement is its excess reserves. It's the excess reserves that create money.
The Fed has supervisory and regulatory authority over many banking institutions. In this role the Fed 1) promotes the safety and soundness of the banking system; 2) fosters stability in financial markets; and 3) ensures compliance with laws and regulations under its jurisdiction.
The Federal Reserve System is not "owned" by anyone. The Federal Reserve was created in 1913 by the Federal Reserve Act to serve as the nation's central bank. The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress.
Federal Reserve Banks' stock is owned by banks, never by individuals. Federal law requires national banks to be members of the Federal Reserve System and to own a specified amount of the stock of the Reserve Bank in the Federal Reserve district where they are located.
The Board of Governors--located in Washington, D.C.--is the governing body of the Federal Reserve System. It is run by seven members, or "governors," who are nominated by the President of the United States and confirmed in their positions by the U.S. Senate.
