Money and Banks

Banking Regulations
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Office of the Comptroller of the Currency

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The Office of the Comptroller of the Currency regulates, supervises, and charters all national banks. Additionally, it supervises the federal branches and agencies of foreign banks. The OCC, headquarter in Washington DC with four additional district offices (London, e.g.), was established in 1863 as a US Department of Treasury bureau. The Comptroller, who leads the OCC, is appointed for a five year term by the President with the advice and consent of the Senate.
 
The OCC's staff of examiners conducts on-site reviews of national banks and supervises bank operations. The agency issues rules, legal interpretations and corporate decisions in regards to banking, banking investments, and any other aspects of the banking operation. National bank examiners analyze banks' loan and investment portfolios, earnings, funds management, liquidity, market risk sensitivity, and compliance with consumer banking laws.
 
In regarding national banks, the OCC has the following powers:
  1. Examination of banks.
  2. Approval or denial of applications for new charters, branches, capital, or other changes in corporate or banking structure.
  3. Take supervisory action against banks not in compliance with laws and regulations, or that also engage in illegal banking activities.
  4. Issuance of rules and regulations governing bank investments, lending, and other practices.

 

The OCC's activities are predicated on four objectives that support its mission to ensure a stable and competitive national banking system.

  • The first objective is to ensure safety and soundness of the national banking system
  • Secondly, it strides to encourage competition by allowing banks to offer new products and services.
  • Its third objective is to improve the efficiency and effectiveness of OCC supervision.
  • Finally, they ensure fair and equal acces to financial services for all Americans.

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depth info on the FDIC

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Federal Department Insurance Corporation
 
Congress used the time during the "bank holiday" to create deposit insurance that would protect customer deposits (for a total of up to $100,000 ). The Federal Deposit Insurance Corporation (FDIC) and the Federal Savings and Loan Insurance Corporation (FSLIC) were created in 1933 and 1934 respectively to ensure depositors that in the event of a bank failure, they would get their money back. The gauarantee of insured deposits eliminated the motivation for deposit runs. If banks closed, The government would intervene and repay the deposits.
 
When the federal government steps in to pay insured deposits, it also assumes control of that failing bank. The government then tries to arrange an acquisition or merger with a stronger banks. The federal government acquires some or all of the outstanding loans of the failed bank in the process. The Resolution Trust Corporation (RTC) was created in 1989 to manage these loans. The RTC tried to collect outstanding loans or sell the properties that were being financed by these loans. Part of the huge outlays for bank bailouts in the early 1990's were being offset by proceeds from RTC property sales.
 
Banks continue to compete for deposits and loans in the economy today and will continue to in the future. They'll have the advantage of deposit insurance (FDIC or Savings Association Insurance Fund [SAIF]) in attracting new funds. Congress, though has set stricter requirements on the kinds of loans and investments banks can make. It also has forced bank owners to put more of their own money at risk. The intent of these changes is to improve the financial stability of banks while assuring the public that their deposits are safe even in banks with only limited reserves.

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Banking Laws and Acts

 

In 1861 Secretary of Treasury Salmon P. Chase recommended the establishment of a system of federally chartered national banks, each of which with the power to issue standardized national bank notes based on US bonds held by the bank. In the National Currency Act of 1863, the administration of the new national banking system was vested in the OCC and its chief administrator. The law was rewritten and reenacted as the National Bank Act. This act authorized the Comptroller to hire staff of national bank examiners to supervise and examine national banks.

 

Interest rates on bank accounts were controlled by the national government until the early 1980s. Ceilings existed on interest rates for all savings accounts. Interest payments on demand deposits were prohibited. Money market accounts were prohibited from being offered by banks. The Depository Institutions Deregulation Act of 1980 eliminated the interest rate controls on savings accounts. The DIDRA and the Garn-St Germain Depository Regulations Act lifted restrictions on checking and money markets accounts nationwide.

 

If a check passes through the federal reserve system, REGULATION J of the Federal Reserve Act comes into effect. REGULATION CC governs the availibility of funds in a depositor's account and the process involving checks being dishonored due to nonpayment. The Expedited Funds Availibilty Act limits the time that a depository bank can delay before making the amount of a deposited check available for withdrawal.

 

State law, in addition to some federal law, governs the operation of checking accounts. Article 4 of the Uniform Commercial Code, adopted at least in part by every state, "defines rights between parties with respect to bank deposits and collections. Here are the different parts of the Article and their function:

  • Part 1 of the Articles contains general provisions and definitions
  • Part 2 governs the actions of the first bank to accept checks (depository bank) and other banks that handle the check but are not resposible for its final payment (collecting bank).
  • Part 3 governs the actions of the bank that is responsible for check pament (payor bank).
  • Part 4 governs the relationship between a payor bank and its customer.
  • Part 5 governs documentary drafts. These are checks or other types of drafts that will be honored only if certain papers are presented first to the payor of the draft.

All checks are negotiable instruments. As such, sections of Article 3 of the Uniform Commercial Code govern the relationship between parties who receive and parties who transfer those checks. Articles 4A, 5, and 8 of the UCC (fund transfers, letters of credits and securties) also have an effect on banking activities. Certificates of deposits, aka CDs, may also be negotiable instruments and are also subject to the previously mentioned Article 3 of the UCC. Title 12 of the Code of Federal Regulations, which is divided into many chapters, provides federal agency regulations that concern banks and banking.

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