In the aftermath of the global financial crisis of 2008, the banking sector in the United States became subject to some new regulations established by government legislation. These bank regulations continue to impact the administration and operations of banks and other ancillary financial entities. They also call for increased vigilance and safeguards to protect the government, financial institutions and most importantly, the people.
The Housing and Economic Recovery Act of 2008 was the first in a series of regulatory laws designed to strengthen the U.S. economy. This act was created to prevent home foreclosures through debt counseling and community development programs. This act also required mortgage lenders and other banking institutions to register with the Nationwide Mortgage Licensing System and Registry through the Federal Deposit Insurance Corporation (FDIC) while broadening the scope of the good faith estimate document to cover a wider group of loan products. Consequently, banks and lenders are required to conduct business with greater transparency towards their customers.
The second legislation was the Emergency Economic Stabilization Act of 2008, which authorized the federal government to bail out and purchase several banks and financial institutions that were in danger of complete bankruptcy as a consequence of their investments in tainted mortgage-backed securities. This legislation serves to regulate the cash flow of these institutions and places them under direct government scrutiny until they are able to declare solvency. This requires banks to increase capital and maintain a lower debt ratio.
The Helping Families Save Their Homes Act of 2009 empowers the FDIC with robust funding – over $100 billion – to help banks and their customers prevent foreclosures. This act also required banks and lenders to collect information about their customers in order to aid the loss mitigation process through loan modification programs and work toward restoring the credit worthiness of borrowers whose credit was damaged by faulty loan products.
The fourth major bill, the Dodd-Frank Wall Street Reform and Consumer Protection Act, emphasizes the regulations governing the collection, management, and review of customer data. The act calls for banks and financial institutions to improve their "know-your-customer" (KYC) procedures and comply with the new regulatory powers of the FDIC. It also instituted the Consumer Financial Protection Bureau (CFPB) to regulate the capital requirements and financial practices of banks, credit unions, lenders, servicers and collection agencies concerning their executive-level compensation, governance, risk management, derivatives portfolio, and credit ratings. Banks are required to disclose this data to the FDIC and other federal bodies under the oversight of the U.S. Treasury.
The Financial Reform Law requires banks to comply with federal regulations that aid transparency in lending practices, mitigate institutional risk, improve corporate accountability and prevent a repeat of the global financial crisis.