Exam 17: Regulation of the Financial Institutions Sector

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The principal bank regulatory agencies in the U.S. are the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC) and the banking commissions of the individual states. The Office of the Comptroller of the Currency (OCC) supervises and examines national (federally chartered) banks as well as charters new national banks, while the Federal Reserve System supervises member banks that belong to its system and regulates bank holding companies, the operations of foreign banks in the U.S. and the activities of American banks overseas. The FDIC is responsible for supervising and examining state-chartered banks that it issues but also has regulatory authority over all federally insured depository institutions, both federally chartered and state chartered. The individual state banking commissions supervise and examine the banks they charter.

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Regulators are letting markets do more of the regulation of financial firms and they are also learning how to cooperate more because the financial-service companies they oversee are becoming more alike and acquiring each other, so that regulators must share more information with each other in order to be effective. Indeed, there is a trend in Europe toward creating just one regulator to supervise all financial-service providers. As financial-service industries are gradually being deregulated, the focus of regulation is moving away from control over services offered and geographic expansion to controlling risk taking. More regulatory attention has recently been focused upon the amount of capital contributed by a financial institution's owners and in its off-balance-sheet activities.