A:

In the aftermath of the global financial crisis of 2008, the banking sector in the United States became subject to a number of 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, puts emphasis on 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 with respect to 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.

RELATED FAQS
  1. How are investment banks regulated in the United States?

    Read about the extensive regulations placed on investment banks in the United States, starting with the Glass-Steagall Act ... Read Answer >>
  2. What impact does government regulation have on the financial services sector?

    Learn about how the financial services industry is affected by government regulation, and the different types of regulations ... Read Answer >>
  3. What are the 9 major financial institutions?

    There are nine major types of financial institutions. Understand the major types of financial institutions that exist and ... Read Answer >>
  4. What agencies oversee U.S. financial institutions?

    Discover the specific responsibilities of some of the major regulatory agencies that oversee financial institutions and markets ... Read Answer >>
  5. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
Related Articles
  1. Insights

    A Brief History of U.S. Banking Regulation

    From the establishment of the First Bank of the United States to Dodd-Frank, American banking regulation has followed the path of a swinging pendulum.
  2. Personal Finance

    The History of the FDIC

    Find out why this corporation was developed and how it protects depositors from bank failure.
  3. Investing

    Introduction to the Chinese Banking System

    China's banking system continues to evolve as it steps into a greater role in the global economic system.
  4. Investing

    Mutual funds are not FDIC insured: Here's why

    Find out why mutual funds are not insured by the FDIC, including how to minimize your risk with educated mutual fund investments.
  5. Insights

    What Do the Federal Reserve Banks Do?

    These 12 regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy and provide payment services.
  6. Insights

    The Pitfalls Of Financial Regulation

    Regulatory actions usually have lofty intentions that end up with unintended and negative consequences.
  7. Insights

    The Role of Commercial Banks in the Economy

    We interact with commercial banks daily to carry out simple financial tasks. That said, the function and creation of a commercial bank is anything but simple.
RELATED TERMS
  1. Bank

    A bank is a financial institution licensed as a receiver of deposits. ...
  2. Dodd-Frank Wall Street Reform and Consumer Protection Act

    The Dodd-Frank Wall Street Reform and Consumer Protection Act ...
  3. International Banking Act of 1978

    The International Banking Act of 1978 put all American bank branches ...
  4. Emergency Banking Act of 1933

    The Emergency Banking Act 0f 1933 was a bill passed to restore ...
  5. Federal Reserve Regulations

    Federal Reserve Regulations are rules put in place by the Federal ...
  6. Monetary Control Act

    The Monetary Control Act was a two-title bill that changed bank ...
Trading Center