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1 1 (January 8, 2019)

handle is hein.crs/govxxw0001 and id is 1 raw text is: Cogesoa Researc Servic Updated January 8, 2019 Introduction to Financial Services: Banking Banks serve an important role in the financial system and broader economy by aggregating the savings of households and businesses and lending to individuals, businesses, and federal and local governments. Economic output would be lower if businesses had to finance investments themselves or if individuals could only make expenditures (e.g., home and car purchases) out of savings. In addition, banks provide other important financial services, such as payments processing. This In Focus provides a broad overview of various banking topics-key concepts in banking, overview of regulation, recent banking legislation, and policy issues. Key Concepts in Banking The word bank typically refers to institutions that accept deposits from savers, such as commercial banks and thrifts. (Credit unions are another type of depository.) To accept deposits, an institution must have a federal or state issued charter. Bank deposits are generally insured by the federal government, subject to certain limits. Using customer deposits and other funding, banks generally make loans and acquire certain other assets. Balance Sheet. An understanding of a bank's balance sheet-its assets, liabilities, and capital-provides the foundation for analyzing many banking issues. Loans made and securities owned by a bank typically comprise the majority of the assets on a bank's balance sheet. To get the funding to make loans and acquire assets, banks use liabilities and capital. Customer deposits (e.g., checking and savings account deposits) and any debt that a bank issues (e.g., bonds, repurchase agreements) are liabilities of the bank, as these funds are owed 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 insurance provides stability to the financial markets by guaranteeing individuals' bank deposits up to a $250,000 account limit. The insurance guarantee is backed by the full faith and credit of the United States (and thus ultimately the taxpayers). It is intended to prevent bank runs and promote financial stability. The Federal Deposit Insurance Corporation (FDIC) currently insures bank deposits, and the National Credit Union Administration (NCUA) insures deposits at member credit unions. Overview of Regulation Banks are regulated to ensure they comply with various statutory requirements. Two major components are prudential and consumer regulation. Prudential. Prudential regulation (or safety and soundness regulation) is designed to promote bank profitability and avoid bank failures, and thus protect taxpayers and the stability of the financial system. A bank's primary federal prudential regulator is determined by charter type and corporate structure (see Table 1). Banks are chartered as national banks under the authority of the Office of the Comptroller of the Currency (OCC) or as state banks under the authority of a state regulator. The Federal Reserve (Fed) and the FDIC regulate state banks in conjunction with state bank regulators. Table I. Primary Federal Depository Regulators Regulator Oversees Office of the Comptroller Nationally chartered banks and of the Currency (OCC) national thrifts Federal Reserve (Fed) 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 Federally chartered or insured Administration (NCUA) credit unions Source: Congressional Research Service. Basel IlL Basel III is the latest in a series of evolving international agreements among central banks and bank supervisory authorities to standardize bank capital and liquidity regulations. Basel III strengthened these regulations in response to the 2007-2009 financial crisis. The Basel agreements do not have the same force as treaties; they can be tailored to suit the specific needs of each country. Capital and Liquidity. Holding a high level of capital can make a bank's failure less likely because capital can be written down to absorb losses. In addition, banks need liquidity to meet short-term obligations. For these reasons, banks are generally required to maintain sufficient levels of capital to ensure solvency and protect bank depositors and taxpayers and to hold liquid assets or use stable funding to ensure adequate liquidity. Consumer Compliance. Consumer compliance regulations seek to ensure that banks conform to applicable consumer protection and fair-lending laws. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203) created the Bureau of Consumer Financial Protection (CFPB or BCFP) as a key regulator for consumer protection. Prudential regulators also regulate consumer compliance in some cases. Recent Banking Legislation In response to the 2007-2009 financial crisis, Congress passed the Dodd-Frank Act. It was a major congressional https:I/crsreports.conc -- _-_

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