Microsoft Word - Money, Banking, and Int Finance(scribd).docx

Money, Banking, and International Finance

If a bank receives a charter from the federal government, then three government agencies
can regulate that bank, which are:

 Comptroller of the Currency, an office in the U.S. Treasury Department, regulates national

banks. This office also grants charters on behalf of the U.S. federal government, and it

requires national banks to be members of the Federal Reserve and Federal Deposit

Insurance Corporation. As of 2010, the United States had roughly 1,500 national banks and

50 foreign national banks.

 Federal Deposit Insurance Corporation (FDIC) insures deposits at member banks. If this

agency insures, then it also regulates. As of 2009, the FDIC had 8,195 member banks.

 Federal Reserve System (Fed) is the central bank of the United States and the lender of

the last resort. When a bank encounters financial difficulties and cannot receive a loan

from other financial institutions, then the bank can ask the Fed for a loan. Moreover, the

Fed regulates banks.

A state-chartered bank could have fewer regulations. A state government agency regulates
its state banks, and many states require their banks to join the Fed and/or FDIC. Therefore, a
state bank could have one or more regulatory agencies to deal with.
U.S. government imposed another restriction upon the U.S. banking industry – the
McFadden Act. The McFadden Act prohibited a commercial bank from opening a branch in
another state. This law put national and state banks on equal footing and helped foster
competition. However, this law kept small inefficient banks in business, causing the United
States to have the largest number of banks in the world. The United States had 14,217 banks in
1986, which fell to 9,459 banks by 2010.
Some states imposed more restrictions upon their banks than other states. For example,
some states had imposed unit banking that restricted a bank to one geographic location. Unit
banking restricts a bank to a single geographical location, such as in one city, and the bank
cannot branch to other cities. Currently, no states enforce unit banking. Furthermore, branch
banking allows a bank to have two or more banking offices owned by a single banking
corporation within a geographical area. Geographic area can be a city, county, or statewide.
Currently, 45 states allow statewide branch banking.
Different institutions evolved in the United States that differ from commercial banks. They
include savings institutions and credit unions, and they are not commercial banks. Thus, they
have their own regulatory agencies. These institutions either have a charter from the federal
government or a state government. The Federal Home Loan Bank System (FHLBS) is a U.S.
government agency similar to the Federal Reserve. The FHLBS regulates nearly 8,000 savings
institutions. Moreover, the FDIC insures deposits at savings institutions. Most credit unions
have charters from the National Credit Union Administration, which issues charters on the
federal government’s behalf. This agency also insures the deposits at credit unions while the
FDIC does not.