My report that show about legislation and regulation of U.S.

1. Commitment to Excellence
សាកលវិទ្យាល័យបញ្ញា សាស្រ្តកម្ពុជា
Paññásástra University of Cambodia
Report on: “Bank Legislation and Regulation”
Course: Money, Banking, and Financial Market
Professor: Ou Phichhang
Submitted By
Group 5
Mr. PHENG Chandara Mr. KEO Sombo
Mr. SEAM Kimhay

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Contents
I). INTRODUCTION---------------------------------------------------------------------------------------3
II). REGULATORY GOALS AND THE BANKING SYSTEM STRUCTURE ----------------3
1) DUAL BANKING -------------------------------------------------------------------------------------------4
2) UNIT BANKING --------------------------------------------------------------------------------------------4
3) CORRESPONDENT BANKING ----------------------------------------------------------------------------4
III). BANKING LEGISLATION --------------------------------------------------------------------------5
1) MONETARY CONTROL ACT-----------------------------------------------------------------------------6
2) GARN-ST GERMAIN ACT --------------------------------------------------------------------------------6
3) COMPETITIVE EQUALITY BANKING ACT-------------------------------------------------------------6
4) FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT-------------------6
5) FEDERAL DEPOSIT INSURANCE CORPORATION -----------------------------------------------------7
6) FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT ---------------------------7
7) DEPOSIT INSURANCE COVERAGE----------------------------------------------------------------------7
8) DEPOSIT INSURANCE PREMIUMS ----------------------------------------------------------------------7
9) FEDERAL DEPOSIT INSURANCE REFORM ACT ------------------------------------------------------8
10) FDIC POLICIES AND ACTIONS ----------------------------------------------------------------------8
11) INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT ------------------------------------8
12) GRAMM-LEACH-BLILEY ACT -----------------------------------------------------------------------8
13) BANK SECRECY ACT AND USA PATRIOT ACT -------------------------------------------------9
IV). CONSUMER PROTECTION LEGISLATION --------------------------------------------------9
1) Fair Housing Act (1968)--------------------------------------------------------------------------------9
2) Community Reinvestment Act (1977)---------------------------------------------------------------9
3) Federal Trade Commission Improvement Act (1980) -------------------------------------------9
V). COMPLIANCE EXAMINATIONS-----------------------------------------------------------------9
VI). BANKING REGULATIONS ----------------------------------------------------------------------- 10
1) Monetary Policy Regulations ----------------------------------------------------------------------- 10
2) Bank Safety and Soundness ------------------------------------------------------------------------- 10

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3) International Banking and Bank Holding Companies ---------------------------------------- 11
4) Federal Reserve Membership and Reserve Bank Procedures ------------------------------- 11
5) Consumer Protections -------------------------------------------------------------------------------- 11
VII). SUMMARY------------------------------------------------------------------------------------------ 12
VIII). REFERANCES-------------------------------------------------------------------------------------- 13

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I). INTRODUCTION
This study focuses on regulatory power federal government agencies and state governments on
banking system in the United States. Also, studying about the dual bank regulatory structure and the
major principles, laws, and regulations that regular the limitations for the banking business. The
banking law plays an important key of the public policy goals of bank regulation in the late
twentieth and early twenty-first centuries. In addition, our study covers the major Federal Reserve
(the Fed) banking regulations and overview the role of bank examinations in effecting regulatory
compliance.
There are some main objectives such as:
 Explain the major goals of bank regulation.
 Differentiate between unit, dual, and correspondent banking systems.
 Discuss examples of federal banking legislation enacted from the late twentieth century to
the present.
 Identify the major consumer protection regulations.
 Cite procedures examiners use to ensure compliance with the Community Reinvestment
Act.
II). REGULATORY GOALS AND THE BANKING SYSTEM STRUCTURE
The health of the economy and the effectiveness of monetary policy depend on a sound
financial system. Through supervising and regulating financial institutions, the Federal Reserve is
better able to make policy decisions. Bank supervision involves monitoring and examining the
condition of banks and their compliance with laws and regulations. If a bank under the Federal
Reserve’s jurisdiction is found to have problems or be noncompliant, the Federal Reserve may use
its authority to request that the bank correct the problems. Bank regulation includes issuing specific
regulations and guidelines to govern the operations, activities and acquisitions of banking
organizations.
The U.S. government, the major goal in regulation banking purposes to protection of banks,
their depositors, and the communities in which they work from bank failure. The banks comply
with Federal regulation such as operate carefully, preserve enough access to liquidity, manage
assets and liabilities profitably to minimize risk of failure and monetary loss for depositors, and
prevent a loss of public confidence in the safety and soundness of the banking system. However,
there are a lot of diverse government agencies banking activities. This regulatory structure includes
dual banking, unit banking, and correspondent banking.

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1) DUAL BANKING
In the United States, banking system
occurs in which state banks and national banks
are chartered and supervised at different levels.
Under the dual banking system, national banks
are chartered and regulated under federal law
and standards, and supervised by a federal
agency through the Office of the Comptroller
of the Currency (OCC). State banks are
chartered and regulated under state laws and
standards, which includes supervision by a
state supervisor.
2) UNIT BANKING
Unit banking refers to a single bank which extracts services and operates without any branches
anywhere. This kind of banking system is common in the USA. Prior to the 1980s the U.S. banking
industry was considered by small single-office banks-a system known as unit banking. Most of
states has permitted branching only within a narrow geographic area surrounding a bank’s
headquarter office or completely prohibited branching within the state. Mostly, unit banking operate
one full banking services.
3) CORRESPONDENT BANKING
Correspondent banks are used by domestic banks in order to service transactions originating in
foreign countries, and act as a domestic bank's agent abroad. This is completed because the
domestic bank may have limited access to foreign financial markets, and cannot service its client
accounts without opening up a branch in another country. In additional, correspondent banks holds
the account balance of other banks and provides or sell services to these banks, known as
respondent banks. Today correspondent banks typically provide respondent banks with a variety of
services including: Check collection, Loan participation, and Dividend reinvestment program
maintenance for respondent bank’s stockholders, Investment advice and so on. Respondent banks
pay for correspondent services either directly through a fee, or indirectly by maintaining a required
minimum account balance with the correspondent bank.

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III). BANKING LEGISLATION
In USA, there are many laws and regulations to control and mange U.S. banking systems, so
banking legislation plays an important role in U.S.’s laws and regulations that governs bank
operations and business activities.
To achieve all these laws and regulations, U.S. government has focused on preventive measures
as below:
 Control the terms and conditions under which banks obtain and use assets and liabilities
 Insure bank depositors against loss
 Set capital requirements
 Establish liquidity, solvency, and profitability guidelines
 Define a consumer code of rights
 Prohibit unfair or discriminatory practices
 Protect the nation and the economy from criminal and terrorist activity
 Federal legislation’s congress enacted laws to:
 Promote more competition between banks and other financial institutions
 Allow commercial and savings banks, savings associations, and credit unions to offer new
products
 Deal with the S&L industry crisis of the 1980s
 Protect the FDIC insurance fund
 Allow banks to establish branches across the country
 Enable banks, insurance companies, and securities firms to affiliate into single FHCs
 Enlist the banking industry to help the U.S. government deter criminal activity and protect
the nation and the economy
Over past 30 years, Federal legislation’s congress enacted laws to:
 Promote more competition between banks and other financial institutions
 Allow commercial and savings banks, savings associations, and credit unions to offer new
products
 Deal with the S&L industry crisis of the 1980s
 Protect the FDIC insurance fund
 Allow banks to establish branches across the country
 Enable banks, insurance companies, and securities firms to affiliate into single FHCs
 Enlist the banking industry to help the U.S. government deter criminal activity and protect
the nation and the economy

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1) MONETARY CONTROL ACT
In 1980, U.S. banking systems enacted Monetary Control Act which the laws and regulations
that control, manage, and issue related with money.
Functions of Monetary Control Act usually:
 Reduced the asset and liability powers for banks and thrifts.
 Reinforced many of the regulations that had been put in place during the Great Depression.
 Set uniform and universal reserve requirements for all depositories and suspended usury
ceilings.
2) GARN-ST GERMAIN ACT
In 1982, U.S. banking systems enacted Garn-St Germain Act. It substantially expended thrifts’
lending powers.
The act authorized banks and thrifts to offer money market deposit accounts (MMDAs) to allow
them to better compete with existing money market funds and provided support to the struggling
S&L industry by permitting banks to purchase failing thrifts across state lines and receive financial
assistance with their purchases.
3) COMPETITIVE EQUALITY BANKING ACT
Passed in 1987, Competitive Equality Banking Act was created in U.S. banking systems on the
activities and growth of nonbank banks.
Its activities are closed the consumer bank, or nonbank, loophole in the Bank Holding Company
Act, which inadvertently allowed nonfinancial entities to own and operate banks.
The Expedited Funds Availability Act, a section of the Competitive Equality Banking Act,
established maximum check-hold periods for depository institutions and required the Fed to change
check-collection procedures to speed the return of dishonored checks to a depositor’s bank.
4) FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT
Financial Institutions Reform, Recovery, and Enforcement Act, passed in 1989, was designed
primarily to address problems that had emerged during the 1980s in the S&L industry and the
deposit insurance system. It provided $50 billion in taxpayer funds to close failed S&Ls and
established the Resolution Trust Corporation (RTC) under the management of the FDIC to
administer the funds.

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Tightened restrictions on S&L activities by reversing some of the legislation of 1980 and 1982 that
broadened thrift lending powers, and raised S&L capital requirements to increase the industry’s
safety and soundness.
5) FEDERAL DEPOSIT INSURANCE CORPORATION
Federal Deposit Insurance Corporation was created in 1933 by the Federal Deposit Insurance
Act and this legislation was enacted in response to the failure of more than 9,100 banks during the
early years of the Great Depression between 1930 and 1933.
It focuses on:
 Protect depositors
 Prevent runs-mass customer withdrawals driven by fear of loss against banks
 Insure deposits at saving associations
6) FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT
Federal Deposit Insurance Corporation Improvement Act was created in 1991 and greatly
increased the powers and authority of the FDIC. Major provisions recapitalized the Bank Insurance
Fund and allowed the FDIC to strengthen the fund by borrowing from the Treasury.
7) DEPOSIT INSURANCE COVERAGE
During the 1980s many savings and loan associations relied on brokered certificates of deposit
as a means of acquiring large amounts of funds from outside their markets. Many S&Ls used these
funds for high-risk loans and investments. To end this practice, FDICIA eliminated insurance
coverage on brokered deposits for all banks and S&Ls except those with the highest capital ratings.
8) DEPOSIT INSURANCE PREMIUMS
Deposit Insurance Premium was based on a bank’s deposit balance size. FDICIA changed the
way the FDIC assesses banks for deposit insurance by linking premiums to risk. Under risk-based
premium system, each bank and thrift insurance rate is dependent on the amount of capital it holds
as a proxy for risk and the FDIC’s assessment of its financial condition, known as a supervisory
rating. Beginning in 1993, banks paid a risked-based premium between 23 to 31 cents per $100 of
insured deposits. The rate later was lowered to 0 to 27 cents.

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9) FEDERAL DEPOSIT INSURANCE REFORM ACT
Federal Deposit Insurance Reform Ac (FDIRA) changed include:
 Increasing the deposit insurance limit from $100,000 to $250,000 per account holder for
many retirement accounts beginning April 2006 and establishing an inflation adjustment
that could result in higher insured limits as of 2011
 Maintaining the limit at $100,000 for nonretirement accounts, but establishing an inflation
adjustment beginning April 1, 2010 like the one established for retirement accounts
 Merging the BIF and SAIF into the Deposit Insurance Fund (DIF)
 Eliminating the 1.25% designated reserve ratio and allowing the FDIC to set the DRR
between 1.15% and 1.5%
 Giving banks rebates for premiums paid to BIF or SAIF in the 1990s and allowing these
funds to be used to offset future premiums
10) FDIC POLICIES AND ACTIONS
The FDIC can respond to a failed bank in one of five ways, including:
 Paying out insurance to the bank’s depositors in an outright payoff
 Allowing a sound bank to buy selected assets and assume the liabilities of a failed bank
 Selling all of failed bank’s assets and insured liabilities to a sound bank
 Taking over a failed bank and operating it in an attempt to restore it to profitability
 Declaring insurance protection for all of the failed bank’s deposits, regardless of amount,
because the bank is “too big to fail”
11) INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT
The Interstate Banking and Branching Efficiency Act is the law of relationship between banking
and branching of a state to another banking and branching of a state. The Interstate Banking and
Branching Efficiency Act was established in 1994. In 1997, the Interstate Banking and Branching
Efficiency Act authorized companies that own controlling interest in one or more banks to buy
banks in any state and allowed these bank holding companies to consolidate their interstate banks
into branch networks. Individual banks also could establish interstate branches by merging with
other banks across state lines.
12) GRAMM-LEACH-BLILEY ACT
Gramm-Leach-Lliley Act was passed in 1999. It authorized banks and other financial
institutions to establish financial holding companies that can own both banks and companies that
provide insurance, securities, and specialized financial service.

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13) BANK SECRECY ACT AND USA PATRIOT ACT
In 1970, Bank Secrecy Act and USA PATRIOT Act (BSA) was created. It requires banks and
other financial institutions to assist government agencies in efforts to curb federal crime by
imposing recordkeeping and reporting requirements.
IV). CONSUMER PROTECTION LEGISLATION
Consumer Protection was primarily a stat responsibility. Most states, for example, prohibited to
set higher interest rates on consumer loans. Most financial transactions involving consumers are
covered by consumer protection laws. These include transactions involving credit, charge, and debit
cards. Lenders are required to provide consumer borrowers with specific written information on the
cost of credit, especially the two most important measures of the cost-the finance charge.
1) Fair Housing Act (1968)
Prohibits discrimination in the extension of housing credit on the basis of race, color, religion,
national origin, sex, handicap, or family status.
2) Community Reinvestment Act (1977)
Encourages financial institutions to help meet the credit needs of their entire communities,
particularly low- and moderate-income neighborhoods.
3) Federal Trade Commission Improvement Act (1980)
Authorizes the Feds to identify unfair or deceptive acts or practices by banks and to issue
regulation to prohibit them.
V). COMPLIANCE EXAMINATIONS
Bank examiners who are specially trained to review consumer protection law compliance.
A compliance examination typically involves:
 a review of consumer complaints about the bank’s operations and a review of the
operational areas generating the complaints
 an onsite review of the bank’s lending program, credit applications, and disclosure
statements
 a review of a statistical sample of the bank’s installment loan files to ensure the bank is
calculating APRs correctly and properly disclosing credit costs

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 a review of a sample of the mortgage files and accepted and rejected mortgage applications
to determine whether a pattern of discrimination or deviation from established lending
policy exists
 a discuss with bank management about all matters of concern noted by the examiner
 a written report of the examination sent to the bank with a request that management respond
to the report and comment on how violations will be corrected
VI). BANKING REGULATIONS
Banking regulations are the rules, guidelines, procedures, and requirements that implement
banking law.
 There are five categories:
 monetary policy
 bank safety and soundness
 international banking and the activities of bank holding companies
 Fed membership and Federal Reserve bank procedures
 consumer protection
1) Monetary Policy Regulations
Monetary policy regulations enable the Fed to manage the nation’s money and credit supply in
line with economic objectives.
A Extensions of credit by Federal Reserve banks
D Reserve requirements for depository institutions
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 stocks
2) Bank Safety and Soundness
A number of banking regulations are designed to ensure the financial well-being and security of
banks.
These regulations address:
F Limitations on interbank liabilities
L Management of official interlocks
O Loans to executive officers, directors, and principal shareholders of member
banks
Q Prohibition against payment of interest on demand deposits

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R Exceptions for banks from the definition of broker in the Securities Exchange
Act
W Transactions between member banks and their affiliates
3) International Banking and Bank Holding Companies
K International banking operations
Y Banking holding companies and change in bank control
4) Federal Reserve Membership and Reserve Bank Procedures
EE Netting eligibility for financial institutions
H Membership of state banking institutions in the Federal Reserve System
I Issue and Cancellation of Federal Reserve Bank capital stock
J Collection of checks and other items by the Federal Reserve banks and funds
transfers through Fedwire
N Relations with foreign banks and bankers
S Reimbursement to financial institution for providing financial records;
recordkeeping requirements for certain financial records
5) Consumer Protections
AA Unfair or deception acts or practices
B Equal credit opportunity
BB Community reinvestment
C Home mortgage disclosure
CC Availability of funds and collection of checks
DD Truth in savings
E Electronic fund transfers
FF Obtaining and using medical information in connection with credit
G Disclosure and reporting of Community Reinvestment Act related agreements
GG Prohibition on funding of unlawful Internet gambling (proposed)
M Consumer Leasing

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P Privacy of consumer financial information
V Fair credit reporting
Z Truth in lending
VII). SUMMARY
The U.S. bank legislation and regulation was created in order to give power to the federal and
state governments control the terms and conditions under which banks obtain and use assets and
liabilities; insure bank depositors against loss; set capital requirements; establish liquidity, solvency,
and profitability guidelines; prohibit unfair or discriminatory practices; and protect the nation and
the economy from criminal and terrorist activity.

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VIII). REFERANCES
 Jon A. Hooks, Ph.D., “Money & Banking”, 6th Edition.
 Source: www.swcollege.com/bef/burton/restricted/finsys3e/tb15.doc
 Source: http://www.law.cornell.edu/cfr/text/12/225.145