Bank regulation

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Bank regulations are a form of government regulation which subjects banks to certain requirements, restrictions and guidelines, aiming to uphold the soundness and integrity of the financial system.

United States

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)

More coming later.

Pass Through Insurance (PTI)

More coming later.

Right to Financial Privacy Act

More coming later.

Sarbanes-Oxley Act of 2002

More coming later.

USA PATRIOT Act

More coming later.

Federal Reserve Regulations

Regulation BB - Community Reinvestment Act (CRA)

• Financial institutions are required to reinvest in the communities they serve. There should be an emphasis on low to moderate income (LMI) neighborhoods.
• Financial institutions must display a CRA notice
• Each branch must have a current CRA public file. It must be shown upon request.

Regulation C - Home Mortgage Disclosure Act (HMDA)

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 CC - Expedited Funds Availability Act

• Defines when standard holds and exception holds can be placed on check deposits, and defines the maximum length of time the money can be held.
• *Deposits made in person and meeting certain requirements must be made available by the next business day.
• *$100 from each deposit on hold is immediately available
• *Standard holds
• **The first $4,900: 2 business days
• **The remaining amount over $5,000: 7 business days
• *Exception Holds
• **The first $4,900: 5 business days
• **The remaining amount over $5,000: 11 business days
• *Special Check Deposits, including guaranteed items such as cashiers checks
• **The first $5,000 must be made available immediately

• A bank's hold policy can be less stringent than the guidelines outlined in Reg. CC, but it cannot exceed the guidelines.

Regulation D - Reserve Requirements for Depository Institutions

• Establishes reserve requirement guidelines.
• Regulates certain early withdrawals from certificate of deposit accounts.
• Defines what qualifies as DDA/NOW accounts. See Reg. Q to see eligibility rules for interest-bearing checking accounts.
• Defines limitations on certain withdrawals on savings and money market accounts.
• *Unlimited transfers or withdrawals if made in person, by ATM, by mail, or by messenger.
• *In all other instances, there is a limit of six (6) transfers or withdrawals. No more than three (3) of these transactions may be made payable to a third party (by check, draft, point-of-sale, etc.).
• *Some banks will charge a fee with each excess transaction
• *Bank must close accounts where this transaction limit is constantly exceeded

Regulation DD - 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 unions.

• [Part 230 -- Truth in Savings (pdf)]

Regulation E - Electronic Funds Transfer Act

More coming later

Regulation O - Loans to Insiders

More coming later

Regulation P - Privacy of Consumer Financial Information

More coming later

Regulation Q - Prohibition Against Payment of Interest on Certain Deposit Account Types

More coming later

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 deposits today.

The reason for these reserves are both to put a limit on how much the supply of deposits (money and credit) can grow. They also work as a cushion in case of a severe recession that leads to a "bank run."

Capital requirement

The capital requirement sets a framework on how banks and depository institutions must handle their capital in relation to their assets. Internationally, the Bank for International Settlements's 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.

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).

See also

• Anti-money laundering
• Financial regulation
• Know your customer
• Monetary policy
• Money market
• Risk adjusted assets (risk weighted assets)

External links

Reserve requirements

• [Reserve Requirements - Fedpoints - Federal Reserve Bank of New York]

Capital requirements

• [The New Basel Capital Accord - Third Consultative Paper - 29 April 2003]
• [FDIC: Risk - Based Assessment System]
• [Risk-weighted assets]

 

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