What Are Federal Reserve Regulations?

Federal Reserve regulations are rules enacted by the Federal Reserve Board to regulate the practices of banking and lending institutions, usually in response to laws enacted by Congress. Regulating and supervising the banking system is one 🐽of the primary functions of the Federal Reserve System.

The main purpose of Fed regulations is to reduce risk in the banking system. Because banks are closely connected through loans and obligations, a failure at one bank can quickly impact the rest of the financia💛l system. These rules are intended to reduce the likelihood and impact of such a collapse.

How Federal Reserve Regulations Work

One of the primary functions of the Federal Reserve System is to regulate and supervise the nation’s banking system. The Board of Governors of the Federal Reserve System is ultimately responsible for these activities, which it executes through the regional Federal Reserve banks. 澳洲幸运5官方开奖结果体彩网:The Board regulates banking practices and capital 🎀requirements to further its own monetary and financial policy and to implement laws⛦ enacted by Congress.

Federal Reserve regulations are legally binding. The Fed also supervises banks to ensure that they are complying with the letter and intent of the Fed's regulations, and takes enforcement actions against banks that fail to comply.

The Fed's regulation and supervision follow two broad principles:

• Microprudential regulation involves examining and supervising specific banks to hold them to prudential standards of lending honesty, riskiness, and sound 澳洲幸运5官方开奖结果体彩网:capital requirements.
• Macroprudential regulation involves broad rules aimed at promoting the soundness of the financial system as a whole against systemic risk.

Fed regulation of the financial system has been a frequent topic of debate and a target of criticism following 澳洲幸运5官方开奖结果体彩网:financial crises such as the 澳洲幸运5官方开奖结果体彩网:Great Recession. As a quasi-public entity, nominally privately owned but establis♈hed and empowered by federal la🧜w, the Fed is generally expected to act in the public interest.

Like any regulator, the Fed may be subject to conflicts of interest and public choice issues, like rent-seeking and regulatory capture, ꦑwhich may be reflecte👍d in its policies and regulations.

History of Federal Reserve Banking Regulation

澳洲幸运5官方开奖结果体彩网:Banking regulation was mostly a matter for individual states prior to the Civil War, except under the 澳洲幸运5官方开奖结果体彩网:First and Second Banks of the👍 Uniꦆted States. These were short-lived precursors to the Federal Reserve System administered by the federal government.

In most cases, the national regulation of the banking system essentially consisted only of the Constitution's requirement that no state could require anything other than gold or silver as 澳洲幸运5官方开奖结果体彩网:legal tender for debts.

Free Banking Era

This period was known as the free banking era because state-regulated banks were generally free to compete in the issuance of loans and paper notes backed by gold or silver money. Banks that over-issued notes relative to their reserves risked market discipline in the form of 澳洲幸运5官方开奖结果体彩网:bank runs and failing public confidence.

States that allowed their 澳洲幸运5官方开奖结果体彩网:chartered banks to do so risked market discipline in the form of local economic downturns due to debt 澳洲幸运5官方开奖结果体彩网:deflation. Banking panics and financial crises were not uncommon, but they were short-lived and localized due to the decentralized nature of th🐠e banking system. Overall, the country maintained an extended period of economic growth and stability.

From State to National Chartered Banks

In order to help finance the Civil War, the federal government enacted the Legal Tender Act and the National Banking Acts in 1862. This was a series of laws that sought to drive state-chartered banks out of the market and replace them with nationally chartered banks using a single, national paper currency. This included the:

• Creation of national charters for banks with accompanying regulations and reserve requirements.
• Abandonment of the 澳洲幸运5官方开奖结果体彩网:gold standard in favor of the issuance of the first federally sanctioned paper currency, which was known as the 澳洲幸运5官方开奖结果体彩网:greenback.
• Heavy taxes on state-chartered banks to drive their notes off the market in favor of the new paper money issued by federally chartered banks.

The power and importance of nationally chartered banks operating out of majo🌃r financial centers increased, and the activity of state-chartered banks was suppressed. State-chartered and state-regulated banks recovered somewhat after the Civil War, with the increasing popularity of checking accounts in place of bank-is♈sued notes.

The Panic of 1907

The number of state- and nationally chartered banks grew in the early 20th century, as did the U.S. economy. The expanding credit supply from the new banks inflated frequent asset bubbles, as borrowers specuꩵlated on the commodity an🐠d stock markets.

The periodic bursting of these bubbles, coupled with the system of nationally networked banks, created increased systemic risk and episodes of widespread debt deflation. The previously short-lived, local financial panics tended to broaden in scale and scope, threatening the interests of the large financial institutions of the northeastern financial centers. This culminated in the 澳洲幸运5官方开奖结果体彩网:Panic of 1907 and a national recession from 1907 to 1908.

In the wake of the panic, members of Congress from the northeastern states and representatives of the major 澳洲幸运5官方开奖结果体彩网:Wall Street banks began to draw up൲ plans to centralize control and regulation of the banking system to protect the interests of the banks that dominated the nation’s💦 major financial centers.

The Birth of the Federal Reserve System

These plans came to fruition with the passage of the 澳洲幸运5官方开奖结果体彩网:1913 Federal Reserve Act, which established the Federal Reserve System. The Act legally required that all nationally chartered banks join the Fed, which would then function as a semi-public governing body for the banking system. As such, the Fed would be accountable to congressional commit🥂tees whose members are normally closely connected to the major banking interests.

Through its regulatory and supervisory functions, the Federal Reserve constrains member banks from engaging in lending or other activities that increase risks to the interests of the 澳洲幸运5官方开奖结果体彩网:financial sector as a whole. The Fed also has regulations to🦩 ensure fairness and transparency in bank loans to protect the public from unfair practices.

Since its establishment, the Fed has issued a large nu🔥mber of specific regulations and requirements for member banks. The overall content of the Fed banking rules and policies represents a complex, emergent outcome of competing financial and political stakeholders interacting through authorizing legislation, regulation, lobbying, and negotiation with special interest groups.

List of Federal Reserve Regulations

Because many of the Federal Reserve regulations have lengthy official titles, they are more often referred to by their assigned regulation letter, such as Regulation D, T, or Z. These letters are assigned in alphabetical order as new regulations are enacted, with newer regulations having to resort to a double-letter format such as AA, BB, etc. A summary of Federal Reserve regulations is as follows:

• A: Extensions of Credit by Federal Reserve Banks
• B: Equal Credit Opportunity, which prohibits lenders from discriminating against borrowers
• C: Home Mortgage Disclosure (Repealed), which requires mortgage lenders to disclose information about their lending patterns to the federal government
• D: Reserve Requirements of Depository Institutions
• E: Electronic Fund Transfers
• F: Limitations on Interbank Liabilities
• G: Disclosure and Reporting of CRA-Related Agreements
• H: Membership of State Banking Institutions in the Federal Reserve System
• I: Issue and Cancellation of Federal Reserve Bank Capital Stock, which establishes stock-subscription requirements for member banks
• J: Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire
• K: International Banking Operations, which oversees international operations of U.S. banks and foreign banks in the U.S.
• L: Management Official Interlocks, which places restrictions on the management relationships officials may have with multiple depository institutions
• M: Consumer Leasing
  Implements the 澳洲幸运5官方开奖结果体彩网:Truth in Lending Act
• N: Relations with Foreign Banks and Bankers
• O: Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks
• P: Privacy of Consumer Information (Repealed), which implements the 澳洲幸运5官方开奖结果体彩网:Gramm-Leach-Bliley Act
• Q: Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks
• R: Exceptions for Banks from the Definition of Broker in the Securities Exchange Act of 1934
• S: Reimbursement to Financial Institutions for Providing Financial Records; Recordkeeping Requirements for Certain Financial Records
• T: Credit by Brokers and Dealers
• U: Credit by Banks and Persons other than Brokers or Dealers for the Purpose of Purchasing or Carrying Margin Stock
• V: Fair Credit Reporting
• W: Transactions between Member Banks and Their Affiliates
  Implements sections 23A and 23B of the Federal Reserve Act
• Y: Bank Holding Companies and Change in Bank Control
• Z: Truth in Lending
• AA: Unfair or Deceptive Acts or Practices (Repealed)
• BB: Community Reinvestment
  Implements the 澳洲幸运5官方开奖结果体彩网:Community Reinvestment Act
• CC: Availability of Funds and Collection of Checks
• DD: Truth in Savings (Repealed)
• EE: Netting Eligibility for Financial Institutions
• FF: Obtaining and Using Medical Information in Connection with Credit
• GG: Prohibition on Funding of Unlawful Internet Gambling
• HH: Designated Financial Market Utilities
• II: Debit Card Interchange Fees and Routing
• JJ: Incentive-Based Compensation Arrangements
• KK: Swaps Margin and Swaps Push-Out
• LL: Savings and Loan Holding Companies
• MM: Mutual Holding Companies
• NN: Retail Foreign Exchange Transactions
• OO: Securities Holding Companies
• PP: Definitions Relating to Title I of the Dodd-Frank Act
• QQ: Resolution Plans
• RR: Credit Risk Retention
• TT: Supervision and Regulation Assessments of Fees
• VV: Proprietary Trading and Relationships with Covered Funds
• WW: Liquidity Risk Measurement Standards
• XX: Concentration Limit
• YY: Enhanced Prudential Standards

Explain Like I'm Five

The Federal Reserve is thওe central bank of the United States. It was founded in response to a severe banking crisis that caused a widespread financial panic. Because banks were borrowing more and moreඣ money from one another, a failure at one bank could impact the whole system.

In addition to monetary policy, the Fed is responsible for supervising the banking system to prevent future panics. It setsꦗ rules for how much capital each bank must have in reserve, the assets they can hold, and who they can lend to. These rules are✱ intended to maintain a fair and stable banking system.

The Bottom Line

The Federal Reserve has been around since the passage of the Federal Reserve Act of 1913. Along with executing monetary policy, one of its key roles is regulating the country's banking system. The Federal Reserve supervises the banking system to ensure that lenders have adequate capital reserves and that they do not take undue risk.

These regulations help keep the banking system in check so that depositors and lenders arꦫe not endangered by risky banking practices. There are also regulations to ensure fairness and transparency in bank loans. Banks that do not comply can be fined or face other penalties.