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1 1 (January 4, 2021)

handle is hein.crs/goveanx0001 and id is 1 raw text is: Updated January 4, 2021 Introduction to Financial Services: Banking Banks serve an important role in the financialsystemand broader economy. They aggregate the savings of households and businesses and lend to individuals, businesses, and federal and local governments. Economic output wouldbe lower if, insteadofbanks, businesses had to finance investments themselves or individuals had to rely on their savings aloneto make expenditures (e.g., home and car purchases). Banks also provide other important financial services, such as payments processing. This In Focus reviews key concepts in banking, provides an overview of banking-related regulations and recent banking regulation, andhighlights emerging policy issues. Key Concepts in Banking Bank generally refers to an institution that accepts deposits, makes loans, and processes payments, including commercial banks and thrifts (but generally not credit unions, which have a different ownership model). To accept deposits, an institutionmusthave a federalor stateissued charter. Bankdeposits are generally insuredby the federal government, subject to certainlimits. Using customer deposits and other funding, banks generally make loans and acquire certain other assets. Balance Sheet. An understanding ofa bank's balance sheet-its assets, liabilities, and capital-provides the foundation for analyzing many banking is sues. Loans made and securities ownedby abanktypically comprisethe majority of assets on abank's balance sheet. To getthe funding to make loans and acquire as sets, banks use liabilities and capital. Customer deposits (e.g., checking and savings account deposits) and any debt that a b ankis s ues (e.g., bonds, repurchase agreements) are liabilities of the bank, as the bank owes these funds to its customers and creditors. The difference between the assets and liabilities is the bank's equity (i.e., ownership interest). Deposit Insurance. Federal deposit ins urance is intended to prevent bankruns and promote financial stability to the financialmarkets by guaranteeing individuals' bank deposits up to a $250,000 accountlimit. Although the deposit insurance is funded by the industry, it is backed by the full faith and credit of the United States (and thus, ultimately by the taxpayers). The Federal Deposit Insurance Corporation (FDIC) insures bank deposits. Overview of Regulation Two major components ofbankregulation are prudential and consumer compliance regulation. Prudential. Prudential regulation (orsafety and soundness'' regulation) is designedto promote bank profitability and avoid bank failures, thereby protecting taxpayers and the stability of the financial system. A bank's https://crsrept charter type and corporate structure determine its primary federal prudentialregulator (see Table 1). Banks are chartered and regulated as nationalb anks under the authority of the Office of the Comptroller of the Currency (OCC) or as statebanks underthe authority of a state regulator. The Federal Reserve (Fed) andthe FDICregulate state banks in conjunction with state bankregulators. Most banks are o wned by a p arent comp any-called a bank holding company (BHC). Some BHCs have subsidiaries that engage in nonbankfinancial activities, such as underwriting and dealing in certain types of securities. The Fed is the primary regulator of BHCs. Table 1. Primary Federal Depository Regulators Regulator Oversees Office of the Comptroller of the Currency (OCC) Federal Reserve (Fed) Nationally chartered banks and national thrifts Bank holding companies; and Fed member state banks and thrifts Federal Deposit Insurance Non-Fed member state banks Corporation (FDIC) and thrifts National Credit Union Administration (NCUA) Federally chartered or insured credit unions Source: Congressional Research Service. Capital and liquidity rules are important prudential regulation tools. Holding a high level of capital can make a bank's failure less likely because capital can be written down to absorblosses. For this reason, banks are generally required to maintain sufficient levels ofcapitalto ensure solvency and protect bank depositors and taxpayers. Banks need liquidity to meet short-termobligations; thus, banks are generally required to hold liquid assets or use stable funding to ensure adequate liquidity. Consumer Compliance. Cons umer compliance regulations seek to ensure that banks conformto applicable consumer protection and fair-lending laws. The Consumer Financial Protection Bureau (CFPB), created by the Dodd-Frank W all Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203), is primarily responsible for is suing the rules that all banks must comply with. CFPB is the primary s upervis or for consumer compliance at banks with more than $10 billion in as sets. Prudential regulators are the primary supervisors for consumer compliance at banks with $10 billion orless in total as sets. Recent Banking Legislation Congress passed the Dodd-Frank Act in response to the 2007-2009 fmancialcrisis. This major response was arguably the most comprehensive fmancialreform legislation since the 1930s. .conress.ov

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