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Bank regulations are a form of Government Regulation which subject Bank s to certain requirements, restrictions and guidelines, aiming to uphold the soundness and integrity of the Financial System . GENERAL PRINCIPLES OF BANK REGULATION Banking regulations can vary widely across nations and jurisdictions. Most countries' bank regulations however address certain similar policy goals and requirements. This section of the article describes general principles of bank regulation throughout the world. The following sections address specific banking requirements in the United States and other countries. Reserve requirement See Also: 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 Deposit s today. Reserve requirements serve monetary policy goals by limiting the growth and supply of money. The higher a bank's reserve requirement is, the more money it must hold in reserve and thus cannot lend (which would thereby create new money). Reserve requirements also serve a safety and soundness role by acting as a cushion in case of a severe recession that leads to a " Bank Run ." See the description of "Regulation D" above for more specific information on regulatory reserve requriements for US banks. Capital requirement See Also: Capital requirement The capital requirement sets a framework on how banks and Depository Institution s must handle their Capital in relation to their Asset s. Internationally, the Bank For International Settlements ' 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 . Most developed countries do not adjust the capital adequacy ratios to their yearly inflation rates, therefore eroding their lending capacity, year after year. This has promoted the growth of Junk Bonds, hedge funds and private equity as prime lenders, without the customary lending standards. Banks have redirected their dying business to services, high yield consumer credit, derivatives, closing credit deparments and losing credit inteligence, now restricted to two firms, S&P and Moody´s. Loans are not evaluated in terms of the % Cs of credit, but only on underlying Assets and the credit rating. 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). Activity and Affiliation Restrictions More coming later. Payments Systems Requirements More coming later. UNITED STATES Bank regulation in the United States is highly fragmented compared to other 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). Federal Regulatory Agencies 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 , and 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. Credit Unions in the United States are subject to certain similar bank-like regulations and are supervised by the National Credit Union Administration . State Regulatory Agencies State-chartered banks are also subject to the regulation and supervision of the state regulatory agency of the state in which they were chartered. State regulation of state-chartered banks applies in addition to federal regulation. For example, a California state bank that is not a member of the Federal Reserve System would be regulated by both the California Department of Financial Institutions and the FDIC. Likewise, a Nevada state bank that is a member of the Federal Reserve System would be jointly regulated by the Nevada Division of Financial Institutions and the Federal Reserve. Federal Laws and Regulations This portion of the article focuses on federal banking laws and regulations. State banking laws also apply to state-chartered banks and certain nonbank affiliates of federally-chartered banks. Bank Secrecy Act See Also: 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) See Also: Fair Credit Reporting Act More coming later. Lending Limits Lending limit regulations restrict the total amount of loans and credits that a bank may extend to a single borrower. This restriction is usually stated as a percentage of the bank's capital or assets. For example, a national bank generally must limit its total oustanding loans and credits to any single borrower to no more than 15% of the bank's total capital and surplus. [http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&tpl=/ecfrbrowse/Title12/12cfr32_main_02.tpl] Some state banking regulations also contain similar lending limits applicable to state-chartered banks. [http://www.leginfo.ca.gov/cgi-bin/displaycode?section=fin&group=01001-02000&file=1220-1238] Both federal and state laws generally allow for a higher lending limit, up to 25% of capital and surplus for national banks, when the portion of the credit that exceed the initial lending limit is fully secured. Pass Through Insurance (PTI) More coming later. Right to Financial Privacy Act More coming later. Sarbanes-Oxley Act of 2002 See Also: Sarbanes Oxley More coming later. USA PATRIOT Act See Also: 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. [http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=635f26c4af3e2fe4327fd25ef4cb5638&tpl=/ecfrbrowse/Title12/12cfr201_main_02.tpl ][http://www.federalreserve.gov/boarddocs/press/bcreg/2002/200210312/default.htm][http://www.federalreserve.gov/boarddocs/press/bcreg/2002/20020517/attachment.pdf] =Regulation B - Equal Credit Opporunity See Also: Equal Credit Opportunity Act More coming later. =Regulation C - Home Mortgage Disclosure Act (HMDA) See Also: 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 D - Reserve Requirements for Depository Institutions
=Regulation E - Electronic Funds Transfer Act See Also: Electronic Funds Transfer Act =Regulation F - Limitations on Interbank Liabilities More coming later. =Regulation O - Loans to Insiders Regulation O establishes varying quantitative 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. [http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=635f26c4af3e2fe4327fd25ef4cb5638&tpl=/ecfrbrowse/Title12/12cfr215_main_02.tpl ][http://www.federalreserve.gov/regulations/cg/regocg.htm] =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). [http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=635f26c4af3e2fe4327fd25ef4cb5638&tpl=/ecfrbrowse/Title12/12cfr217_main_02.tpl ] =Regulation W - Transactions Between Member Banks and Their Affiliates Regulation W establishes quantitative and qualitative requirements for loans, purchases of assets, and other transactions between banks and their affiliates. The term "affiliate" is broadly defined and includes parent companies, companies that share a parent company with the bank, companies that are under other types of common control with the bank (e.g. by a trust), companies with interlocking directors (a majority of directors, trustees, etc. are the same as a majority of the bank's), subsidiaries, and certain other types of companies. =Regulation AA - Unfair or Deceptive Acts or Practices More coming later. =Regulation BB - Community Reinvestment Act (CRA) See Also: Community Reinvestment Act
=Regulation CC - Expedited Funds Availability Act See Also: Expedited Funds Availability Act
=Regulation DD - Truth in Savings Act See Also: 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 Union s. PREEMPTION OF STATE BANKING LAWS By statute and judicial interpretation of statutes and the United States Constitution, federal banking statutes and the regulations and other guidance issued by federal banking regulatory agencies often preempt state laws that would regulate certain activities of nationally chartered banking institutions and their subsidiaries. Specific exceptions to the general rule of federal preemption exist, e.g. some contract law, escheat law, and insurance law. OTS Preemption of State Law Fiduciary Activities of Savings and Loans, or Thrifts One example of OTS Preemption begins with Section 550.136(a) of the OTS Regulations, providing that “. . . OTS occupies the field of the regulation of the fiduciary activities of Federal savings associations . . .. Accordingly, Federal savings associations may exercise fiduciary powers as authorized under Federal law, including this part, without regard to State laws that purport to regulate or otherwise affect their fiduciary activities, except to the extent provided in 12 U.S.C. § 1464(n) . . . or in paragraph (c) of this section.” 12 U.S.C. § 1464(n), authorizes fiduciary activities for federal savings associations, and specifies certain state law requirements that are applicable to federal savings associations. Section 550.136(c) lists six types of state laws that in certain specified circumstances are not preempted with respect to Federal savings associations See also
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