Blog: A general introduction to the banking regulatory regime in USA – Lexology

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Financial regulatory reform in the United States was shaped in 2021 primarily by the transition between presidential administrations, and an increased focus on digital assets and calls for their regulation.

Following the inauguration of President Joseph Biden in January 2021 and the Democratic Party taking control of both houses of Congress, the new administration entered office with an ambitious programme for regulatory reforms.2 As part of this programme, the new administration has focused on environmental, social and governance (ESG) issues, the digital transformation of the financial industry and the emergence of nascent financial technology companies, as well as consumer financial protection in the United States. The administration’s reform goals are supported by President Biden’s appointees to many key posts at the regulatory agencies, including for example Gary Gensler as the new Chair of the US Securities and Exchange Commission (SEC) who, together with fellow regulators and Congress, has increased the scrutiny of digital assets.3 Although some items on the Biden administration’s agenda were slowed by delays in appointing key officials,4 the implementation of the Administration’s agenda is expected to unfold more substantively over 2022.

This chapter summarises the principal elements of banking regulation in the United States.

The regulatory regime applicable to banks

i Dual banking system

The United States has a dual banking system, whereby banks, or depository institutions, may be chartered by either federal or state authorities. To accept deposits, an institution must apply for and obtain a bank or thrift charter from either a federal or state regulator. The Office of the Comptroller of the Currency (OCC) is the federal bank regulator with the power to charter national banks5 and, since 2011, thrifts or federal savings associations.6 The OCC is part of the US Treasury Department. Separately, each state also has a regulatory agency that may charter either banks or thrifts. The Federal Reserve is the primary federal supervisor of state-chartered banks that choose to become members of the Federal Reserve System.

The Federal Deposit Insurance Corporation (FDIC) is the primary federal supervisor of state-chartered banks that are not members of the Federal Reserve System.7 The FDIC also administers the federal deposit insurance programme that insures certain bank deposits, including supervising any bank failures, and regulates certain bank activities and operations to protect the federal deposit insurance fund.

All nationally chartered banks are required to hold stock in one of the 12 Federal Reserve Banks, while state-chartered banks may choose to be members of and hold stock in a regional Federal Reserve Bank, upon meeting certain standards. Benefits of Federal Reserve membership include eligibility to vote in the election of their regional Federal Reserve Bank’s board of directors, which affords member banks the opportunity to participate in monetary policy formulation.8

ii Bank holding companies

Any legal entity with a controlling ownership interest in a bank or thrift is regulated as a bank holding company (BHC) or savings and loan holding company (SLHC) by the Federal Reserve.9

iii Foreign banks

Foreign bank activities in the United States are supervised by the Federal Reserve, or any other regulator implicated by the type of charter or entity that a foreign bank uses to conduct its banking business in the United States.

iv Relationship with the prudential regulator

Most banks are first regulated by their chartering entities, or their primary regulators. Primary regulators are generally responsible for conducting bank examinations, initiating supervisory and enforcement actions, and approving branch, change of control, merger and other applications. State-chartered institutions are regulated at the federal level by the Federal Reserve in the case of state member banks, or by the FDIC in the case of state non-member banks. The following table summarises these relationships.

Institution type Chartering agency Primary federal regulator Secondary federal regulator
Federal charter
National bank OCC OCC Federal Reserve, FDIC
Federal savings association OCC OCC FDIC
Federal savings bank OCC OCC FDIC
State charter
State non-member bank State agency FDIC N/A
State member bank State agency Federal Reserve FDIC
State savings bank State agency FDIC N/A
State savings association State agency FDIC N/A
Foreign banks
Foreign bank uninsured state branches and agencies State agency Federal Reserve N/A
Foreign bank uninsured federal branches and agencies OCC OCC Federal Reserve
Foreign bank commercial state chartered lending companies State agency Federal Reserve N/A
Foreign bank representative offices State agency Federal Reserve N/A

Banks and BHCs may also be subject to functional regulation by other regulatory agencies, depending on the types of activities in which they engage. For instance, a BHC’s securities underwriting and dealing activities are also regulated by the US Securities and Exchange Commission (SEC), the functional regulator of any SEC-registered broker-dealer.

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