Federal Reserve Regulations

What Are Federal Reserve Regulations?

Federal Reserve regulations are rules put in place by the Federal Reserve Board to direct the practices of banking and lending institutions, typically in response to laws enacted by the council. Controlling and managing the banking system is one of the primary functions of the Federal Reserve System. The goal of most Federal Reserve regulations is to advance the stability of the banking system.

Figuring out Federal Reserve Regulations

One of the primary functions of the Federal Reserve System is to control and direct the country's banking system. The Fed Board of Governors is eventually responsible for these activities, which it executes through the regional Fed banks. The Board proclaims regulations for banking practices and capital requirements to additional its own monetary and financial policy and to execute laws enacted by Congress.

Federal Reserve regulations are legally binding on member endlessly banks that disregard them can be closed down by the Fed. They are explicit, written rules that banks must follow. The Fed additionally directs supervision of the banks, analyzing banks' practices, assessing their compliance with the letter and intent of Federal Reserve regulations, and making enforcement moves.

Federal Reserve regulation and supervision follow two broad principles of microprudential and macroprudential functions. Microprudential regulation and supervision includes the examination and enforcement of regulations upon specific banks to hold them to prudential standards of lending honesty, riskiness, and sound capital requirements. Macroprudential regulation and supervision includes broad rules that are pointed toward advancing the sufficiency of the financial system as a whole against systemic risk.

Fed regulation of the financial system has been a regular subject of discussion and a target of analysis following episodes of financial crisis like the Great Recession. As a quasi-public entity, ostensibly privately owned yet settled and empowered by federal law, the Fed is generally expected to act in the public interest. Nonetheless, similar to any regulator, the Fed can be subject to irreconcilable situations and public decision issues including rent-seeking and regulatory capture, which might be reflected in its policies and regulations.

History of Federal Reserve Banking Regulation

Before the Civil War, the regulation of banks was generally a matter managed by the individual states, with the exemptions of First and Second Banks of the U.S., short-lived forerunners to the Federal Reserve System that were administered by the federal government. In any case, national regulation of the banking system basically comprised exclusively of the Constitution's requirement that no state could require something besides gold or silver as legal tender for debts.

This period was known as the time of free banking, since state-controlled banks were generally free to contend 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 as bank runs and bombing public confidence, and states that permitted their chartered banks to do so risked market discipline as nearby economic downturns due to debt deflation. Banking panics and financial emergencies were normal, however they were short lived and restricted due to the decentralized idea of the banking system. Overall, the country kept an extended period of economic growth and stability.

Beginning in 1862, to assist with funding the war, the federal government enacted the Legal Tender Act and the National Banking Acts, a series of laws that looked to drive state-chartered banks out of the market and replace them with nationally chartered banks utilizing a single, national paper currency. This incorporated the creation of national contracts for banks (with accompanying regulations and reserve requirements), the abandonment of the gold standard for the issuance of the main federally authorized paper currency (known as "greenbacks"), and heavy punitive taxes on state banks to drive their notes off the market for the new paper money issued by federally chartered banks.

The power and significance of nationally chartered banks operating out of the country's major financial centers, for example, New York increased and the activity of state-chartered banks was stifled. State-chartered and state-managed banks recovered to some degree soon after the war with the rising prominence of checking accounts in place of bank-issued notes.

By the mid twentieth century the numbers of both state-and nationally chartered banks had developed alongside the U.S. economy. Widespread issuance of credit to fuel speculation in commodity and stock markets by the extending number of banks and related financial institutions prompted asset bubbles. The periodic blasting of these bubbles, combined with expanding interconnections between banks through the system of nationally arranged banks operating on Wall Street and the major regional commercial centers made increased systemic risk and episodes of boundless debt deflation.

The already short-lived, nearby financial panics currently would in general broaden in scale and scope and compromise the interests of the large financial institutions of the northeastern financial centers. This finished in the Panic of 1907 and a national recession from 1907-1908. In the wake of the Panic of 1907, Congress members form the northeastern states and agents of the major Wall Street banks started to draw up plans to additionally unify control and regulation of the banking system to safeguard the interests of the large, deeply grounded, and all around associated banks that ruled the country's major financial centers.

These plans worked out as expected with the foundation of the Federal Reserve System in 1913, under the Federal Reserve Act. Under the Act, all banks were legally required to join the Federal Reserve System, which would then function as a sort of national banking cartel controlled by the largest and most powerful banks, accountable thus to congressional committees whose members are typically closely associated with the major banking interests. Through its regulatory and supervisory functions, the Federal Reserve acts as the legal implementer of this cartel, to compel member banks from taking part in lending or different activities that might be productive to them individually however may increase risks to the interests of the financial sector as a whole.

Since its foundation, the Fed has issued a large volume of specific regulations and requirements for member banks. A few Fed regulations have later been switched, and a portion of those have later been reinstated. The overall substance of the Fed banking rules and policies addresses a complex, new outcome of contending financial and political stakeholders interacting through the most common way of approving legislation, regulation, lobbying, and negotiation with special interest gatherings.

Rundown of Federal Reserve Regulations

Since a considerable lot of the Federal Reserve regulations have extensive official titles, they are all the more frequently referred to by their assigned regulation letter, like Regulation D, T, or Z. These letters are assigned in sequential order as new regulations are enacted, with more up to date regulations falling back on a twofold letter format like AA, BB, and so on. A summary of Federal Reserve regulations is as follows:

A: Extensions of Credit by Federal Reserve Banks
B: Equal Credit Opportunity

Prohibits lenders from discriminating against borrowers

C: Home Mortgage Disclosure (Repealed)

Requires mortgage lenders to unveil 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

Lays out stock-membership requirements for member banks

J: Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire
K: International Banking Operations

Oversees international operations of U.S. banks and foreign banks in the U.S.

L: Management Official Interlocks

Places limitations on the management relationships officials might have with various depository institutions

M: Consumer Leasing

Carries out the 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)
Carries out the 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 to buy or Carrying Margin Stock
V: Fair Credit Reporting
W: Transactions between Member Banks and Their Affiliates

Executes areas 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

Carries out the 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

Features

The Fed issues and authorizes regulations that limit the lending and different activities of member banks, for both microprudential and macroprudential purposes.
In its regulatory function (and others) the Fed is broadly assumed to act in the public interest, however the actual history and content of Fed rules and policy will generally mirror the interests of its most powerful political and financial stakeholders.
One of the Federal Reserve System's primary functions is to act as regulator and supervisor of banks and the banking system in the U.S.