The objectives of bank regulation, and the emphasis, vary between jurisdictions. The most common objectives are: 1.Prudential—to reduce the level of risk to which bank creditors are exposed (i.e. to protect depositors) 2.Systemic risk reduction—to reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures 3.Avoid misuse of banks—to reduce the risk of banks being used for criminal purposes, e.g. laundering the proceeds of crime 4.To protect banking confidentiality
5.Credit allocation—to direct credit to favored sectors
General principles of bank regulation
Banking regulations can vary widely across nations and jurisdictions. This section of the article describes general principles of bank regulation throughout the world.
Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Unlike Japan and the United Kingdom (where regulatory authority over the banking, securities and insurance industries is combined into one single financial-service agency), the U.S. maintains separate securities, commodities, and insurance regulatory agencies—separate from the bank regulatory agencies—at the federal and state level. Regulatory authority
A bank's primary federal regulator could be the Federal Deposit Insurance Corporation, the Federal Reserve Board, or the Office of the Comptroller of the Currency. Within the Federal Reserve Board are 12 districts centered around 12 regional Federal Reserve Banks, each of which carries out the Federal Reserve Board's regulatory responsibilities in its respective district. Credit unions are subject to most bank regulations and are supervised by the National Credit Union Administration. The Federal Financial Institutions Examination Council (FFIEC) establishes uniform principles, standards, and report forms for the other 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.
State banking laws apply to state-chartered banks and certain non-bank affiliates of federally-chartered banks.
By statute, and in accordance with 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 regulating certain activities of nationally-chartered banking institutions and their subsidiaries. Specific exceptions to the general rule of federal preemption exist such as some contract law, escheat law, and insurance law.
One example of Office of Thrift Supervision 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)...