Banking Regulation in the United States - Research Paper Example

There are three federal banking regulators in the US which include; the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of Currency all having separate although overlying authority over commercial banks. Additionally, there exist various groups of depository institutions having similar functions to those of banks although they have unique categories of regulatory institutions, laws, and regulations (Shanmuganathan, Merlin, and Bryan 389). Banking regulations can be classified into varying groups to reduce ambiguity and to link the regulation to the motives behind their introduction.

According to Shanmuganathan, Merlin, and Bryan (392), the regulations could either fall under economic regulations, information regulations, or health-safety-environment (HSE) regulations. Economic regulations comprise restrictions and requirements introduced by the government to control profits, prices, and conditions for entry and exit into the industry. In the banking industry, economic regulations include limits on interest rates paid on deposits and those charged on credit. They also include limits on fees charged for financial services, requirements for the establishment of new branches or entry into the banking industry, and limitations on areas and activities where banks can engage (Shanmuganathan, Merlin, and Bryan 394).

In the banking industry, information regulations require banks to offer standardized information on deposits and loan rates to customers. Moreover, information regulations require that banks ensure safe custody of customers’ information. Health-safety-environment (HSE) regulations in the banking industry are implemented to prevent banks from becoming insolvent. Safety and soundness regulations are based on various tools such as minimum capital requirements, restrictions on banking activities, and supervising the bank’s management to ensure the bank's operations are run competently and honestly.

All the regulations in turn protect the consumers’ interests (Shanmuganathan, Merlin, and Bryan 395). Banking regulations in the US have a long history and have undergone various changes to conform to emerging economic concerns. Previously, most banks in the US were state-based and issued varying notes. Consequently, the federal government had limited control of banks until the National Banking Act was passed in 1864 establishing a national banking system and allowing for chartering of national banks (Williams, Julie and Gillespie 1279). This act set the stage for the development of a common and stable national currency which was to be backed by the US Government bonds issued within the national bank's system. Although this law could be linked to the demand for a national currency, its main motive was to create a reliable market where government bonds could be sold in a new network of national banks to acquire resources to finance the Civil War.