U.S. and International Banking Law, Legislation, Supervision and Regulation

Credit and Finance Risk Analysis - www.credfinrisk.com

U.S. & International Banking Law, Legislation and Regulation

FDIC Enforcement Decisions and Orders

OCC Enforcement Actions

OTS Enforcement Orders

Federal Reserve List of Enforcement Actions

The new U.S. Treasury Department Capital Assessment Program bank stress test is designed to determine if a bank could survive / continue lending in the event that:

The unemployment rate continues to increase in excess of 10%

Primary residential property prices continue to decline an additional 14% to 25%

U.S. GDP declines by 2% to 3% during 2009

The point of the test is to determine which banks are strong, which may need more capital (tangible common equity) to continue lending and which banks may struggle and/or become insolvent.
www.federalreserve.gov/newsevents/press/bcreg/bcreg20090424a1.pdf

Results released May 7, 2009: www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf

In 2008, the actions of the Federal Reserve have been unprecedented except for since during the U.S. Depression.

On Sunday, March 16, 2008, The Federal Reserve reduced the Discount lending rate to 3.25% from 3.50%.

On Sunday, March 16, 2008, The Federal Reserve indicated that it will provide liquidity in the form of short-term loans to non-bank financial services companies (investment banks, brokerages) and will accept a broad range of collateral (including difficult-to-value- securities) for the loans.

On Sunday, March 16, 2008, The Federal Reserve approved and provided support to JPMorgan Chase & Co. to acquire Bear Stearns Cos. for $236.2 million by providing special financing for the acquisition and by agreeing to fund up to $30 billion of Bear Stearns' outstanding balance sheet assets.

On Friday, March 14, 2008, The Federal Reserve provided support to Bear Stearns Cos. by arranging and guaranteeing a 28-day liquidity loan from JPMorgan Chase.

On Monday, March 10, 2008, the Federal Reserve indicated that it would provide to investment banks up to $200 billion in U.S. Treasury securities up to 28 days in exchange for highly rated securities as collateral.

Federal laws that have applied to the U.S. banking industry.

National Bank Act of 1864 (Ch. 106, 13 Stat. 99; June 3, 1864): Revision of the Act to Provide National Currency (ch. 58, 12 Stat. 665, February 25, 1863); Established a national banking system of federally chartered banks and uniform national currency.; Established a government agency headed by a Comptroller of the Currency (as a bureau of the U.S. Department of the Treasury) to regulate nationally-chartered banks (National banks were required to purchase U.S. government securities, deposit the securities with the Comptroller, and the received national bank notes in return).; On March 3 1865, Congress levied a 10% tax on (non-federal) State Bank Notes in order to phase the bills out of circulation.

Aldrich-Vreeland Act of 1908 (Ch. 229, 35 Stat. 546; May 30, 1908): Provided for emergency currency issues during financial crises.; Established the National Monetary Commission to search for a long-term solution to the nation's banking and financial problems.

Federal Reserve Act of 1913 (P.L. 63-43 / Ch. 6, 38 Stat. 251; 12 USC 221; December 23, 1913).: Established the Federal Reserve System as the nation's central bank with 12 regional banks, 7-member Board of Governors, reserve requirements, assist with the management of the money supply, efficient check clearing, and improve bank regulation.; Section 19 of the Federal Reserve Act gives the Federal Reserve Board authority to impose reserve requirements on deposits of member institutions for monetary policy purposes and to define terms such as deposit, savings deposit, time deposit, nonpersonal time deposit, and transaction account.

Edge Act of 1919 (USC 12, Ch. 6, Subchapter II, Stat. 611-631): Amendment to the Federal Reserve Act.; Allowed a Bank, Bank Holding Company or Financial Holding Company to form Edge Act corporations in states other than their home state, to engage in international business transactions.; Foreign banks operating in the U.S. are permitted to organize and own an Edge Act Corporation.; www.access.gpo.gov/uscode/title12/chapter6_subchapterii_.html

McFadden Act of 1927 (P.L. 69-639, 44 Stat. 1224; 12 U.S.C. 36).: Amendment to the National Bank Act of 1864 and the Federal Reserve Act of 1913.; Established that nationally chartered banks are subject to state authority, thus states do not have to let them in and effectively barring interstate banking.

Banking Act of 1933 / Glass-Steagall Act (P.L. 73-66, 48 Stat. 162; 16 June 1933).: In the wake of the crash of the stock market, it separated commercial and investment banking (except for U.S. government obligations) as a way to reduce risk in the future.; Established the Federal Deposit Insurance Corporation (FDIC), interest rate ceilings, prohibited interest on demand deposits.; Established a limitation on commercial banks to purchase securities for their own account.; Prohibits investment bank performing commercial bank operations.; Authorizes intrastate national bank branching.

Banking Act of 1935 (P.L. 74-305, 49 Stat. 684): Established the FDIC as a permanent agency of the government.; Retires national bank currency in favor of Federal Reserve notes.

Bank Holding Co. Act of 1956: Regulates formation of bank holding companies (BHC); allows non-bank subsidiaries to operate across state lines.

Bank Merger Act of 1960: Established that bank mergers that reduced competition are prohibited.

One-Bank Amendment to the Bank Holding Co. Act, 1970: established that companies that own one bank are henceforth subject to federal regulations as banks holding companies.

Home Mortgage Disclosure Act of 1975 (HMDA) (12 U.S.C. 2801): Implemented by the Federal Reserve Board's Regulation C; Requires depository and non-depository financial institutions to collect and disclose information about 1 to 4 family residential housing-related loans and applications for such loans for purchases, home purchase pre-approvals, home improvement, and refinance.; Type of information collected and reported includes loan amount, purpose of the loan (home purchase, home improvement, refinancing), type of property involved (single-family, multifamily), loan type (conventional loan, FHA loan, VA loan or a loan guaranteed by the Farmers Home Administration), location (state, county, MSA and census tract) of the property, race of the borrower(s), ethnicity (Hispanic or non-Hispanic) of the borrower(s), gender of the borrower(s), and Whether or not the loan was granted or denied (reason why it was denied).; www.ffiec.gov/hmda/; www.fdic.gov/regulations/laws/rules/6500-3030.html

International Banking Act of 1978 (12 U.S.C. 3105): The growth of foreign banks means that U.S. banks are at a competitive disadvantage thus it imposed federal requirements on foreign banks and extended national treatment to bring them under same obligations.

Electronic Funds Transfer Act of 1978 (15 U.S.C., ch. 41, sub ch. VI, 1693; 12 CFR Part 205): Also known as Federal Reserve Regulation E; Electronic fund transfer (EFT) refers to transactions initiated by the account holder through the use of a debit card in an automated teller machine, point-of-sale (POS) transaction such as a retail purchase, pre-authorized deposits to and, if applicable, transfers from an account with a financial institution, and through a telephone bill payment service.; If one uses an ATM to withdraw money or make deposits or a POS terminal to pay for a purchase, one can get a written receipt, much like a sales receipt one would get with a cash purchase, showing the amount of the transfer, the date it was made, and other information.; The account holder's periodic bank statement must also show electronic transfers to and from the account, including those made with debit cards, by a preauthorized arrangement, or under a telephone transfer plan.; In the event of an error related to the EFT transaction the account holder must contact the financial institution within 60 days from the date of the first statement that indicates an error was made. The financial institution must promptly investigate an error and resolve it within 45 days.; In the event of transactions not initiated by the account holder due to a lost or stolen credit card(s), the loss is limited to $50 if the account holder notifies the financial institution within two business days after learning of loss or theft of their card or code.; www.access.gpo.gov/uscode/title15/chapter41_subchaptervi_.html; www.fdic.gov/regulations/laws/rules/6500-1350.html

Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980: In response to continued non-bank competition, the phase out of Regulation Q allowed deregulation of interest rate ceilings banks could pay; Allowed NOW accounts (Negotiable Order of Withdrawal Account); Increased FDIC coverage to $100,000 per account; State usury laws are voided; Eliminated reserve requirement disparities between different types of depository institutions; Required the Federal Reserve to price its financial services competitively against private sector providers.; Imposed reserve requirements on depository institutions that maintain transaction accounts or non-personal time deposits.

Garn-St. German Act (Depository Institutions Act) of 1982: The continuation of deregulation, allowed Money Market Demand Accounts and Super NOW accounts, for the interstate acquisition of failing firms by unlike financial institutions; FDIC may maintain the capital position of distressed institutions by making periodic purchases of net worth certificates.

International Lending Supervision Act of 1983: Mandated the reporting of country specific loan exposure information by commercial banks and standardized procedures for dealing with problem loans.

Competitive Equality in Banking Act of 1987: Limits growth of non-bank banks; changes definition of bank to include FDIC insured institutions.

Expedited Funds Availability Act of 1987 (12 USC, ch. 40; 12 CFR, part 229): Also referred to as Federal Reserve Regulation CC.; Financial institutions must disclose their hold policies to all account holders, and make the policy available in written form upon request by any customer. It must also be provided at the time of opening of all new accounts. Additional disclosures are required on deposit slips, at ATMs, and when the policy is changed in any way.; e-CFR / Federal Reserve Regulation CC

Financial Institution Reform, Recovery and Enforcement Act of 1989: In response to the collapse of the savings and loan industry in the United States the industry was in effect "reregulated," established RTC (Resolution Trust Co.) to deal with the closure/consolidation of failed banks and the disposition of problem loans/assets.

Basle Agreement on Minimum Risk Adjusted Capital, 1990: Not a U.S. Federal Law, however, the United States is a signatory to the accord so it is enforced. Established 8% capital to risk assets ratio, with a minimum of 4% to Tier One Capital, including off-balance sheet items in determining risk assets; G10 + Switzerland + Luxembourg.; see below

Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991: Established risk-based formula for insurance premiums to be paid by the bank to the FDIC; provided for early closure of severely undercapitalized depository institutions; mandated that federal regulators of banks and thrifts utilize uniform capital standards to ensure competitive fairness among national vs. state chartered banks, savings & loan associations and savings banks.

Foreign Bank Supervision Enhancement Act of 1991: In the wake of the BCCI collapse, the Federal Reserve System must approve all foreign banking operations in the United States.

Interstate Banking and Branching Act of 1994: Allows for the establishment of interstate banking by 1997

Supreme Court Ruling, 1996: U.S. Supreme Court rules in favor of Barnett Banks, a decision which allows U.S. banks to sell insurance in all 50 states.

Gramm-Leach-Bliley Act of 1999: Essentially overturned the Glass-Steagall Act of 1933. Under the Gramm-Leach-Bliley Act, bank holding companies meeting certain eligibility criteria may elect to become "financial holding companies," which allows them to an offer expanded list of financial services that includes insurance policy sales, securities underwriting and dealing, merchant banking, investment advisory and lending activities.; banking.senate.gov/conf/

Patriot Act of 2003: Requires banks to improve capabilities and controls for the monitoring of accounts with regard to existing money laundering guidelines such as frequent wire deposits that are immediately withdrawn or transferred, check for the creation of multiple accounts by a single entity, all cash transactions in excess of USD $10,000, or the purchase of money orders, traveler's checks or bank drafts in excess of USD 3,000, and provide such information to the U.S. Treasury Department, regional Federal Reserve Bank branch and the respective state banking department. (Sections 311, 312, 314 (a), 314(b), 326, and 352).

Check Clearing for the 21st Century Act (Check 21 Act; Effective October 28, 2004; P.L. 108-100; 12 U.S.C. 5001–5018): Banks may exchange digital images of checks rather than actual paper checks in order to reduce processing time (no longer have to move original paper checks from the bank where the checks are deposited to the bank that pays them).

Federal Deposit Insurance Reform Act of 2005: Created a single insurance fund by merging Savings Association Insurance Fund (SAIF) and Bank Insurance Fund (BIF), effective March 31, 2006, to be known as the Deposit Insurance Fund (DIF).

Mortgage Forgiveness Debt Relief Act of 2007: Prior to the Act, debt forgiven following mortgage foreclosure or renegotiation on the individual's primary residence was considered income for tax purposes, resulting in tax liability for individuals and families. Thus, the Act provides relief to individuals / families by permanently excluding debt forgiven under these circumstances from tax liability.; Assists would-be homeowners to secure their investments through a long-term extension of the tax deduction for private mortgage insurance (December 31, 2010) but one must have closed on the mortgage on or after January 1, 2007.; Eases restrictions for qualifying as housing cooperative corporations.; Tightens requirements taxpayers must meet to exclude gain from the sale of certain homes that have been used as a vacation home or rental property.

U.S. and International Banking Supervision and Regulation

Bank for International Settlements (BIS)

The Bank for International Settlements was created in 1930 as a result of the Hague Conference. The bank is owned by its membership, which are the central banks of nations from all over the world. The bank is primarily designed to facilitiate financial stability and international money flows between nations. The BIS is located in Basel / Basle Switzerland (hence the name of various agreements).

The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten (G10) countries in 1975. The Basel Committee does not possess any formal supranational supervisory authority, and its conclusions do not have legal force. However, the Basel Committee does formulate broad supervisory standards and guidelines and recommends statements of best practices, which have been adopted by many financial institutions for the management and control international and commercial banking operations.

Basel I

The 1988 Capital Accord of the Basel Committee (Basel I; International Convergence of Capital Measurement and Capital Standards) established minimum bank capital adequacy requirements (minimum BIS Ratio of 8.0% capital to risk-weighted assets) that could be applied to many banks in many jurisdictions.

The Basel Committee has supplemented the 1988 Capital Accord’s original focus on credit risk with explicit capital charge for exposures to market risk in 1996 (which has been incorporated into the comprehensive version of the International Convergence of Capital Measurement and Capital Standards: A Revised Framework / Basel II).

Basel II

The 2004 Capital Accord of the Basel Committee (Basel II; International Convergence of Capital Measurement and Capital Standards: A Revised Framework) is a revision of the Basel I Accord, which continues to focus on the adequate capitalization of banks and improvements in risk management practices. The structure of the framework is organized around three pillars:

Minimum Capital Requirements

Supervisory Review Process

Market Discipline

Basel II will allow banks to have some flexibility by allowing them to be able to select between two regulatory frameworks to calculate capital requirements for credit risk:

Standardized Approach (SA), which is a universal risk weighting of assets based on the SRO credit rating agency rating (S&P, Moody's and Fitch; the Basel report refers to them as external credit assessment institutions / ECAIs) of the specific borrower or a universal risk weighting based on the asset class.

Internal Ratings-Based (IRB), which is a financial institution developed proprietary internal capital model based on their own internal estimates of risk components; approved by U.S. rgulators

The risk weighting of asset classes set out in the 1988 Accord has been revised in Basel II.

Claims on sovereigns
Credit Assessment	AAA to AA-	A+ to A-	BBB+ to BBB-	BB+ to B-	Below B-	Unrated
Risk Weight	0%	20%	50%	100%	150%	100%

For the purpose of risk weighting claims on sovereigns, supervisors may recognise the country risk scores assigned by Export Credit Agencies (ECAs). To qualify, an ECA must publish its risk scores and subscribe to the OECD agreed methodology. Banks may choose to use the risk scores published by individual ECAs that are recognised by their supervisor, or the consensus risk scores of ECAs participating in the “Arrangement on Officially Supported Export Credits”.

Claims on Multilateral Development Banks (MDBs) - The claims on highly rated MDBs - Bank for International Settlements, the International Monetary Fund, World Bank Group: International Bank for Reconstruction & Development and the International Finance Corporation, Asian Development Bank, African Development Bank, European Bank for Reconstruction & Development, Inter- American Development Bank, European Investment Bank, European Investment Fund, Nordic Investment Bank, Caribbean Development Bank, Islamic Development Bank and Council of Europe Development Bank, evaluated by the Basel Committee, shall be assigned 0% risk weight. The claims on other MDBs will be based on external credit assessments.

Claims on banks - There are two options for claims on banks. National supervisors will apply one option to all banks in their jurisdiction.: Under the first option, all banks incorporated in a given country will be assigned a risk weight one category less favourable than that assigned to claims on the sovereign of that country. However, for claims on banks in countries with sovereigns rated BB+ to B- and on banks in unrated countries the risk weight will be capped at 100%.; The second option bases the risk weighting on the external credit assessment of the bank itself with claims on unrated banks being risk-weighted at 50%. Under this option, a preferential risk weight that is one category more favourable may be applied to claims with an original maturity of three months or less, subject to a floor of 20%. This treatment will be available to both rated and unrated banks, but not to banks risk weighted at 150%.

Option 1
Credit Assessment of Sovereign	AAA to AA-	A+ to A-	BBB+ to BBB-	BB+ to B-	Below B-	Unrated
Risk Weight Under Option 1	20%	50%	100%	100%	150%	100%

Option 2
Credit Assessment of Banks	AAA to AA-	A+ to A-	BBB+ to BBB-	BB+ to B-	Below B-	Unrated
Risk Weight Under Option 2	20%	50%	50%	100%	150%	50%

Claims on corporates
Credit Assessment	AAA to AA-	A+ to A-	BBB+ to BB-	Below BB-	Unrated
Risk Weight	20%	50%	100%	150%	100%

Claims secured by residential property - Lending fully secured by mortgages on residential property that is or will be occupied by the borrower, or that is rented, will be risk weighted at 35%.

Claims secured by commercial real estate - Lending fully secured by mortgages on commercial real estate will be risk weighted at 100%. The Committee, however, recognises that, in exceptional circumstances for well-developed and longestablished markets, mortgages on office and/or multi-purpose commercial premises and/or multi-tenanted commercial premises may have the potential to receive a preferential risk weight of 50% for the tranche of the loan that does not exceed the lower of 50% of the market value or 60% of the mortgage lending value of the property securing the loan. Any exposure beyond these limits will receive a 100% risk weight.

Past due loans. The unsecured portion of any loan (other than a qualifying residential mortgage loan) that is past due for more than 90 days, net of specific provisions (including partial writeoffs), will be risk-weighted as follows:: 150% risk weight when specific provisions are less than 20% of the outstanding amount of the loan.; 100% risk weight when specific provisions are no less than 20% of the outstanding amount of the loan.; 100% risk weight when specific provisions are no less than 50% of the outstanding amount of the loan, but with supervisory discretion to reduce the risk weight to 50%.

Banks are required to file the Internal Capital Adequacy Assessment Process (ICAAP) form on an annual or biennial basis as part of Basel II compliance.

The Basel II Accord requires that banks set aside capital against operational risk (defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems, or from external events). The measurement of operational risk requires that financial institutions track transactions and measure the failure rate of reconciliation with counterparties. The measurement system must be able to model a probability of events that could occur and may result in an operational loss.

Basel II will allow banks to have some flexibility by allowing them to be able to select between three regulatory frameworks to calculate capital requirements for operational risk:

Basic Indicator Approach (BIA)

Standardized Approach (SA)

Advanced Measurement Approach (AMA), which is a financial institution developed proprietary internal capital model; approved by U.S. rgulators

Basel II requires that banks improve management practices to meet the minimum requirements of the Internal Models Method for market risk.

www.bis.org/publ/bcbs128.pdf (.pdf format; Comprehensive Version, June 2006)

There was some controversy over the implementation of Basel II due to the additional charge to capital for expected losses that is already covered by a charge against earnings (provisions). The U.S. plans to obligate only 12 core banks to follow the Basel II Accord guidelines.

On July 20, 2007, U.S. banking regulators indicated that the implementation of Basel II in the United States should be technically consistent in most aspects with the international version. The U.S. implementation timetable is expected to consist of parallel calculations under the current regulatory capital regime (Basel I) and Basel II, starting January 1, 2008, and an implementation transition period, starting January 1, 2009 through year-end 2011 or possibly later. The U.S. regulators have reserved the right to change how Basel II is applied in the U.S. following a review at the end of the second year of the transitional period, and to retain the existing Prompt Corrective Action and leverage capital requirements applicable to U.S. banking organizations.

The Committee on Payment and Settlement Systems (CPSS) is a coordinating committee among central banks to provide guidance on the development of domestic and cross border payment, settlement (including multi-currency) and clearing systems for large-value payments, securities and foreign exchange.

Federal Reserve Bank System

In the United States, the banking sector is regulated by the Federal Reserve, which is the nation's central Bank. The Federal Reserve System was created in 1913 (Federal Reserve Act) with 12 regional banks, 7-member Board of Governors (who are accountable to the U.S. Congress), reserve requirements, assistance with the management of the money supply, efficient check clearing, and improve bank regulation (the Board writes bank and consumer protection regulations to implement the laws passed by Congress). The Federal Reserve has oftened been referred to in its structure as a decentralized central bank.
Federal Reserve Act, 12 U.S.C. ch.3 www.federalreserve.gov/generalinfo/fract/

The Federal Reserve System consists of the Board of Governors located in Washington, D.C., a network of 12 Federal Reserve Banks and 25 branches. The Fed is responsible for the storage of currency and coin (actual printing of the Federal Reserve Notes is conducted by the Bureau of Engraving and Printing / BEP and minting of coinage is by the U.S. Mint), processing checks and electronic payments, supervision commercial banks within the respective territory of each Federal Reserve District bank, process payments for the U.S. Treasury, sell government securities, assist with the Treasury's cash management and investment activities, and conduct research on regional, national and international economic issues.

The Federal Reserve Banks are located in Boston (District 1), New York (District 2), Philadelphia (District 3), Cleveland (District 4), Richmond (District 5), Atlanta (District 6), Chicago (District 7), St. Louis (District 8), Minneapolis (District 9), Kansas City (District 10), Dallas (District 11) and San Francisco (District 12). Similarly, each Federal Reserve Note (U.S. currency) issued by a Federal Reserve District Bank has a Letter on the bill indicating which bank it was issued by: Boston (A), New York (B), Philadelphia (C), Cleveland (D), Richmond (E), Atlanta (F), Chicago (G), St. Louis (H), Minneapolis (I), Kansas City (J), Dallas (K) and San Francisco (L).

Each Federal Reserve District bank president (only five representatives, either presidents or first vice presidents serve on the FOMC at any given time), along with Chairman of the Federal Reserve, is a member of the Federal Open Market Committee (FOMC), which establishes the direction of monetary policy within the United States. The FOMC meetings set the federal funds rate and the Committee's announcements on the economy are widely followed and have a substantial influence on markets. When there is a policy shift and it appears that the FOMC is signalling that it will recommend (or be recommending in the future) an increase in its interest rates (monetary policy "tightening" primarily to respond to inflation) then equities and debt markets are disrupted. Equity sahres in interest sensitive companies (home construction for example) are sold and existing debt at lower interest rates see their prices decline so that the yield increases. In the currency market, the U.S. dollar will increase in value as it is anticipated that foreign investors will wish to purchase higher interest rate debt securities in the future.

Federal Reserve bank supervision audit reviews must be conducted every 12 to 18 months and mandate that banks are subject to CAMELS ratings (Capital, Asset quality, Management, Earnings, Liquidity and market Sensitivity) based on the result of the examination. The possible rating assignment as a result of the review is a 1 through 5, with 1 being the best. A rating of 1 or 2 indicates that the institution is financially sound while 3 or lower indicates concern over the institution's operations. CAMEL may sometimes also means: Capital Adequacy, Asset Quality, Margins, Earnings and Leverage / Liquidity.

The Federal Reserve also controls the amount of the money supply available within the United States and targets money supply growth rates as part of its monetary policy oversight. The money supply measurements are reported weekly by the Federal Reserve and are presented in the form of monetary aggregates: M1, M2 and M3. M1 is the "narrowest" measure of the available money supply and includes cash (currency) and checking accounts, essentially immediate cash assets. M2 includes the components of M1, however it also adds savings accounts and personal CDs, essentially assets that are not readily available but could quickly be converted to immediate cash assets. M3 is referred to as the "broadest" measure of the money supply and it includes the components of the M1 and M2 aggregates and also includes financial instruments held by financial institutions, which could be converted to cash.

The Fed controls the money supply by selling and purchasing securities in the open market and by establishing and monitoring the reserve account that depositroy institutions must maintain with their respective district Federal Reserve Bank. First, by purchasing securities the Fed releases cash to banks who in turn lend it to consumers and businesses. Conversely, when the Fed sells securities they take cash (in exchange for security) thus removing liquidity (excess cash). In addition, the Reserve Account requirement also influences how much "money" is created by banking activity. For instance, if the Reserve requirement is 10%, then if a bank receives $1,000 it must place $100 into the reserve account and can then lend out the $900 blance. When the $900 is lent and then deposited with another bank, that bank must deposit $90 into the reserve account and can then lend the $810 balance ($900 minus the $90). Thus, if the Reserve Account requirement is moved to 12% or 8% then either more cash would be held in reserve or less cash would be held in reserve, which would result in less cash or more cash in circulation and available for successive transactions.

The Federal Reserve also functions as the Clearing House operation for processing all of the billions of checks written in the United States every year.

The Federal Reserve Bank of New York performs foreign currency exchange transactions on the behalf of the Fedral Reserve system and also functions as the central paying agent for FNMA MBS pass-through securities.

As per the terms of the Securities Exchange Act of 1934, the Federal Reserve is responsible to regulate the margin requirements in securities markets where securities are purchased on credit.

Banks chartered as national banking associations and state banks that apply, may be members of the Federal Reserve system. Any state bank that has sufficient Tier 1 and Tier II capital ratios may through the vote of 51% of its sharenolders convert to a national banking association. Mututal savings banks that have no capital stock but have surplus and undivided profits not less than the amount of capital required for the organization of a national bank in the same place, may apply for and be admitted to membership in the Federal Reserve System on terms similar to savings banks.

A bank holding company, a foreign bank subject to the Bank Holding Company Act or a state member bank may acquire a broker-dealer authorized to engage in securities underwriting, dealing, or market-making.

Bank Regulation & Supervision

In the United States, domestic banks (savings and commercial) and foreign bank branches are subject to regulations enforced by:: Federal Reserve Bank; Office of the Comptroller of the Currency (OCC, U.S. Treasury Dept.) (On February 12, 2004, the OCC removed the regulatory authority of state banking departments to regulate nationally chartered banks and reserved that authority at the Federal level). This means that 14 state predatory-lending laws and other consumer-protection laws at the state level no longer apply to banks chartered by the federal government.; Fedral Deposit Insurance Company (FDIC); Office of Thrift Supervision (OTS); State Banking Office (please also see Links to State Banking Departments); BIS Basel Accord I & II asset risk weighting / risk weighted capital / operational risk measurement regulations

The Federal Reserve is empowered by Congress under the Federal Reserve Act to excercise supervisory and regulatory authority over various types of financial institutions. The laws that the Federal Reserve enforces through its own regulations are codified in title 12, chapter II, of the Code of Federal Regulations (12 CFR 201). The Fed also works with several of the other federal agencies and state banking departments to supervise and regulate the U.S. and international banking industry to protect depositors / consumers, promote a competitive environment and stabilize the international monetary system.

The Federal Reserve has the primary responsibility of supervising (monitor and examine specific banks) and regulating (establish guidelines concerning the structure and conduct of banking operations):: Bank holding companies (including their non-bank subsidiaries and their foreign subsidiaries); State-chartered banks that are a member of the Federal Reserve System (referred to as state member banks) and their foreign branches and subsidiaries. (All federally chartered banks are automatically members of the System; state-chartered banks may elect to join the System); Edge Act corporation (set up by a U.S. bank) chartered by the Federal Reserve to engage in international banking operations.; Branches of foregin banks operating within the United States.

The Federal Reserve has oversight of changes in the control of bank holding companies and state member banks.

The Office of the Comptroller of the Currency (OCC) charters, regulates and supervises nationally chartered banks. The OCC is also responsible for changes in the control of national banks.

The Federal Deposit Insurance Corp. (FDIC), the Federal Reserve and state banking authorities regulate state chartered banks. The FDIC and is responsible for changes in the control of insured state nonmember banks.

The Office of Thrift Supervision (OTS) examines federal and state-chartered thrift institutions, which include savings banks and savings and loan associations.

The Federal Financial Institutions Examination Council (FFIEC; 1978) was developed as an inter-regulatory agency organization for the establishment of uniform federal principles and standards for the examination of depository institutions. The FFIEC uniform financial reporting forms and the Uniform Financial Institutions Rating System is used by all federal and state banking regulators in their examinations of banks / depository institutions.

All federal and state regulators have adopted the Capital Adequacy measurement standard that was developed in 1988 by the international Basle Committee on Banking Regulations and Supervisory Practices and is known as the Basel I Accord (International Convergence of Capital Measurement and Capital Standards).

Bank	Charter	Regulator
Bank Holding Company	National or State charter and Fed member	Supervised by the Federal Reserve (FRB)
Commercial bank	National (federal) charter and Fed member	Chartered & supervised by the Office of the Comptroller of the Currency (OCC)
State / Commercial bank	State charter and Fed member	Supervised by the Federal Reserve (FRB)
State / Commercial bank	State charter and Fed non-member	Supervised by the FDIC
Savings banks	State charter	supervised by the FDIC
Savings & Loan associations	State or federal charter	Supervised by the Office of Thrift Supervision (OTS)
Thrift Holding Cos.	State or federal charter	Supervised by the Office of Thrift Supervision (OTS)
Cooperative banks		supervised by the Federal Reserve and/or FDIC
Edge Act & agreement corps.		supervised by the Federal Reserve
Section 20 affiliates		supervised by the Federal Reserve & SEC
Foreign bank branch	State license	supervised by the Federal Reserve and FDIC (if insured)
Foreign bank branch	Federal license	supervised by the Federal Reserve and OCC; FDIC if insured
Foreign bank representative office		supervised by the Federal Reserve
Industrial bank	State Charter	supervised by the state banking department

The Federal Reserve requires the Reserve Banks to examine every state member bank and inspect all large bank holding companies at least once every year. Under the terms of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), all insured depository institutions must be examined once every twelve months (certain small banks may be examined once every eighteen months). Under the terms of the Foreign Bank Supervision Enhancement Act of 1991 (FBSEA), all branches and agencies of foreign banks must be examined on-site at least once every twelve months in cooperation with the other federal and state regulators.

There are several different types of bank examinations and ratings:: CAMEL (Uniform Financial Institutions Rating System) (state member banks); BOPEC (bank holding companies); CAMEO (Edge and agreement corporations and overseas subsidiaries of U.S. banks); ROCA (U.S. branches and agencies of foreign banking organizations); Uniform Interagency Trust Rating System; Uniform Interagency Rating System for Data Processing Operations

Financial institutions also file standardized financial regulatory reports with the Federal Reserve. Banks file what are known as "Call Reports" (Consolidated Reports on Condition and Income) and the holding companies file the FR Y-9 Series report (Consolidated Financial Statements for Bank Holding Companies).

Uniform Commercial Code (UCC)

The Uniform Commercial Code is the body of law that provides for nationwide uniformity in the way certain kinds of loans are secured. A UCC lien is a financial document stating that the Lender (secured party) has a claim in certain property belonging to the Borrower (debtor). By filing a UCC lien, a secured party establishes his or her priority for payment over subsequent secured parties if the debtor defaults on the loan. The lien document is usually filed with the Secretary of State's Office of the respective state where the Borrower is registered (or if an individual then the UCC is filed in the state of the Borrower's legal residence) and serves as a notice to interested parties of the existence of a security interest against specific collateral. A number of states have set up web-based / on-line UCC filing systems.

Information Sources

Asia Pacific Group on Money Laundering (APG) www.apgml.org/

Austrac (Australian Transaction Reports and Analysis Centre) www.austrac.gov.au/

Bank for International Settlements (BIS / Bank für Internationalen Zahlungsausgleich) www.bis.org/index.htm

Basel Committee on Banking Supervision www.bis.org/bcbs/index.htm

Caribbean Financial Action Fask Force (CFATF) www.cfatf.org/

Depository Trust Company www.dtcc.com/

Deutsche Bundesbank, Members of the Bund Issues Auction Group www.bundesbank.de/download/kredit/kredit_bietergruppe_mitglieder_en.pdf

Euribor Historical Data www.euribor.org/html/content/euribor_data.html

European Banking Federation www.ebf-fbe.eu/

European Central Bank www.ecb.int/

European Securitisation Forum www.europeansecuritisation.com/

Eurepo Panel Banks www.eurepo.org/eurepo/panel.html

Federal Deposit Insurance Company (FDIC) www.fdic.gov/
FDIC Institution Directory www2.fdic.gov/idasp/index.asp
FDIC Banking Review www.fdic.gov/bank/analytical/banking/index.html
FDIC Research and Analysis www.fdic.gov/bank/analytical/index.html
FDIC State Profiles www.fdic.gov/bank/analytical/stateprofile/index.html
FDIC Industry Analysis www.fdic.gov/bank/index.html
FDIC Call Reports www2.fdic.gov/Call_TFR_Rpts/search.asp

Federal Financial Institutions Examination Council (FFIEC) www.ffiec.gov/
FFIEC Uniform Bank Performance Report (UBPR) www2.fdic.gov/ubpr/UbprReport/SearchEngine/Default.asp

Federal Reserve Bank Discount Window www.frbdiscountwindow.org/

Federal Reserve Bank of Atlanta (District 6) www.frbatlanta.org/

Federal Reserve Bank of Boston (District 1) www.bos.frb.org/

Federal Reserve Bank of Chicago (District 7) www.chicagofed.org/

Federal Reserve Bank of Cleveland (District 4) www.clevelandfed.org/

Federal Reserve Bank of Dallas (District 11) www.dallasfed.org/

Federal Reserve Bank of Kansas City (District 10) www.kc.frb.org/

Federal Reserve Bank of Minneapolis (District 9) www.minneapolisfed.org/

Federal Reserve Bank of New York (District 2) www.ny.frb.org/

Federal Reserve Bank of Philadelphia (District 3) www.phil.frb.org/

Federal Reserve Bank of Richmond (District 5) www.rich.frb.org/

Federal Reserve Bank of San Francisco (District 12) www.frbsf.org/

Federal Reserve Bank of St. Louis (District 8) www.stls.frb.org/

Federal Reserve Beige Book www.federalreserve.gov/FOMC/BeigeBook/2008/

Federal Reserve Board: Economic Research and Data www.federalreserve.gov/rnd.htm

Federal Reserve Board of Governors www.federalreserve.gov/

Federal Reserve Board Regulations www.federalreserve.gov/regulations/default.htm

Federal Reserve: Check 21 Act www.federalreserve.gov/paymentsystems/truncation.htm

Federal Reserve: Financial Holding Companies www.federalreserve.gov/generalinfo/Fhc/

Federal Reserve: Financial Services www.frbservices.org/

Federal Reserve: Historical Federal Funds Rate www.federalreserve.gov/fomc/fundsrate.htm

Federal Reserve: List of the Primary Government Securities Dealers www.ny.frb.org/markets/pridealers_current.html

Federal Reserve: National Informaion Center www.ffiec.gov/nicpubweb/nicweb/nichome.aspx

Federal Reserve Releases www.federalreserve.gov/releases/

Federal Reserve Reporting and Reserves www.reportingandreserves.org/

Federal Reserve: Reserve Maintenance Manual www.frbservices.org/Accounting/pdf/rmm.pdf#Page=122

Federal Reserve Selected Interest Rates www.federalreserve.gov./releases/H15/current/

Federation of Latin American Banks / Federación Latinoamericana de Bancos (FELABAN) www.latinbanking.com/

Financial Action Task Force (FATF) www.fatf-gafi.org/

Financial Crimes Enforcement Network / FinCEN (U.S. Treasury) www.fincen.gov/pub_main.html

Fintrac (Financial Transaction Reports Analysis Centre of Canada) http://www.fintrac.gc.ca/ (Français / English)

International Money Laundering Information Network (IMoLIN) www.imolin.org/

New York State Banking Department www.banking.state.ny.us/

Office of Foreign Assets Control (U.S. Treasury) www.ustreas.gov/offices/eotffc/ofac/
Sanctions Program and Country Summaries www.treas.gov/offices/eotffc/ofac/sanctions/index.html
Specially Designated Nationals and Blocked Persons www.treas.gov/offices/eotffc/ofac/sdn/index.html

Office of the Comptroller of the Currency (OCC) www.occ.treas.gov/
Oversight of nationally chartered banks in the U.S.

Office of the Superintendent of Financial Institutions (Canada) www.osfi-bsif.gc.ca/ (Français / English)

Office of Thrift Supervision (OTS) www.ots.treas.gov/

United States, House Committee on Financial Services financialservices.house.gov/

United States, Senate Committee on Banking, Housing & Urban Affairs banking.senate.gov/

U.S. State Banking Departments (Regulators)

Alabama State Banking Department www.bank.state.al.us/

Alaska Department of Commerce - Division of Banking, Securities & Corporations www.dced.state.ak.us/bsc/banking.htm

Arizona Department of Financial Institutions www.azdfi.gov/

Arkansas State Bank Department www.state.ar.us/bank/banking1.html

California Dept. of Financial Institutions (DFI) www.dfi.ca.gov/

Colorado Division of Banking www.dora.state.co.us/banking/

Connecticut Department of Banking www.state.ct.us/dob/

Delaware, Office of the State Bank Commissioner www.state.de.us/bank/

District of Columbia Banking Services www.dbfi.dc.gov/dbfi/site/default.asp

Florida Office of Financial Regulation www.flofr.com/

Georgia Department of Banking and Finance www.ganet.org/dbf/dbf.html

Hawaii, Dept. of Commerce and Consumer Affairs, Division of Financial Institutions www.state.hi.us/dcca/dfi/

Idaho Department of Finance finance.idaho.gov/

Illinois Office of Banks and Real Estate www.obre.state.il.us/

Indiana Department of Financial Institutions www.in.gov/dfi/

Iowa Division of Banking www.idob.state.ia.us/

Kansas, Office of the State Bank Commissioner www.osbckansas.org/

Kentucky Department of Financial Institutions www.dfi.state.ky.us/

Louisiana Office of Financial Institutions www.ofi.state.la.us/

Maine Bureau of Financial Institutions www.state.me.us/pfr/bkg/bkg_index.htm

Maryland Commissioner of Financial Regulation www.dllr.state.md.us/finance/

Massachusetts Division of Banks www.state.ma.us/dob/

Michigan Office of Financial and Insurance Services www.michigan.gov/cis/0,1607,7-154-10555---,00.html

Minnesota Dept. of Commerce www.state.mn.us/cgi-bin/portal/mn/jsp/content.do?subchannel=-536881744&id=-536881351&agency=Commerce

Mississippi Department of Banking and Consumer Finance www.dbcf.state.ms.us/

Missouri Division of Finance www.missouri-finance.org/

Montana Banking and Financial Institutions Division www.discoveringmontana.com/doa/banking/

Nebraska Dept. of Banking and Finance www.ndbf.org/

Nevada Division of Financial Institutions www.fid.state.nv.us/

New Hampshire Banking Department www.state.nh.us/banking/

New Jersey Dept. of Banking and Insurance www.njdobi.org/

New Mexico Financial Institutions Division www.rld.state.nm.us/fid/index.htm

New York State Banking Department www.banking.state.ny.us/

North Carolina Commissioner of Banks www.nccob.org/

North Dakota Dept. of Financial Institutions www.state.nd.us/dfi/

Ohio Dept. of Commerce, Financial Insitutuions Division www.com.state.oh.us/dfi/

Oklahoma State Banking Department www.state.ok.us/~osbd/

Oregon Division of Finance & Corporate Securities www.cbs.state.or.us/external/dfcs/

Pennsylvania Dept. of Banking www.banking.state.pa.us/

Puerto Rico Bureau of Financial Institutions www.ocif.gobierno.pr/

Rhode Island Department of Business Regulation www.dbr.state.ri.us/

South Carolina Dept. of Consumer Affairs www.state.sc.us/consumer/

South Dakota Division of Banking www.state.sd.us/drr2/reg/bank/BANK-HOM.htm

Tennessee Department of Financial Institutions www.state.tn.us/financialinst/

Texas Department of Banking www.banking.state.tx.us/

Utah Dept. of Financial Institutions www.dfi.state.ut.us/

Vermont Banking Division www.bishca.state.vt.us/BankingDiv/banking_index.htm

Virginia Bureau of Financial Institutions www.state.va.us/scc/division/banking/index.htm

Washington Department of Financial Institutions www.dfi.wa.gov/

West Virginia Division of Banking www.wvdob.org/

Wisconsin Dept. of Financial Institutions www.wdfi.org/

Wyoming, Dept. of Audit, Division of Banking audit.state.wy.us/BANKING/default.htm

Non-U.S. Information Sources

Argentina Ley de Entidades Financieras www.bcra.gov.ar/pdfs/marco/Ley%20de%20Entidades%20financieras.PDF

Australia Financial Services Reform Act 2001 www.comlaw.gov.au/comlaw/management.nsf/lookupindexpagesbyid/IP200402681?OpenDocument

Austria Banking Act and Financial Market Authority Act www.oenb.at/en/img/austrianbankingact_tcm16-11181.pdf

Canada Bank Act laws.justice.gc.ca/en/B-1.01/index.html

Denmark Acts www.dfsa.dk/sw7804.asp

France Code monétaire et financier www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006072026&dateTexte=20080203

Germany Banking Act (Gesetz über das Kreditwesen) www.bundesbank.de/download/bankenaufsicht/pdf/kwg_e.pdf

Hong Kong Chapter 155 Banking Ordinance www.legislation.gov.hk/eng/home.htm

Netherlands Bank Act www.dnb.nl/dnb/home/file/bankact1998_tcm47-147521.pdf

Norway Financial Institutions Act www.kredittilsynet.no/archive/stab_pdf/01/01/20040063.pdf

People's Republic of China Law on Commercial Banks www.pbc.gov.cn/english//detail.asp?col=6800&ID=3

Saudi Arabia Banking Control Act www.sama-ksa.org/en/control/procedure/cofmblr/3.htm

Singapore Banking Act statutes.agc.gov.sg/non_version/cgi-bin/cgi_retrieve.pl?actno=REVED-19

United Kingdom Financial Services and Markets Act 2000 www.opsi.gov.uk/acts/acts2000/ukpga_20000008_en_1

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