What Is a State Banking Department?

The state banking department is a state-specific regulatory body that oversees the operations of financial institutions within its jurisdiction. The primary responsibility of the banking department is to ensure that the financial system is accessible, stable, and safe for all consumers. Types of financial institutions that fall under the supervision of the banking department include commercial banks, credit unions, money transmitters, and non-bank mortgage lenders.

Key Takeaways

  • The state banking department is a state-specific regulatory body that oversees the operations of financial institutions within its jurisdiction.
  • State banking departments evolved out of a need for bank chartering agencies in the early days of the United States, when there was no strong federal banking system.
  • Many banks may fall within the jurisdictions of both state and federal banking regulatory authorities.
  • The state banking department is where many consumers go to file a complaint against a financial institution that is within the banking department's jurisdiction.

How State Banking Departments Work

State banking departments evolved out of a need for bank chartering agencies in the early days of the United States, when there was no strong federal banking system. State banking departments were the first entities authorized to charter banks, and they continue to charter banks today.

The dual banking system began in the late 19th century after the passage of the National Bank Act of 1863. The act formed the Office of the Comptroller of the Currency (OCC) and authorized the OCC to charter national banks.

Banking Department Jurisdictions

Not all banks operating in a state fall within that state's jurisdiction. State-chartered banks and some non-bank affiliates of federally chartered banks may fall within the jurisdiction of that state’s banking regulatory authority. Other federally chartered banks are under the jurisdiction of the Federal Reserve System or the Federal Deposit Insurance Corporation (FDIC).

Many banks may fall within the jurisdictions of both state and federal banking regulatory authorities. A state-chartered bank that is a member of the Federal Reserve System will be under the oversight of both that state’s banking department and the Federal Reserve. State-chartered banks that are not a part of the Federal Reserve System will fall under the supervision of both that state's banking department and the FDIC. In this manner, most banks are regulated by both state and federal regulatory agencies.

Depending on a bank's organizational structure and the type of charter it has, it can be subject to many redundant federal and state regulations. The combination of federal and state oversight of banks is known as the dual banking system.

Contacting the State Banking Department

The state banking department is where many consumers go to file a complaint against a financial institution that is within the banking department's jurisdiction. The Consumer Financial Protection Bureau (CFPB) maintains a database of contact information for state banking departments. The Office of the Comptroller of the Currency also helps to direct consumer complaints to the appropriate banking regulatory agency, whether it is a state banking department or a federal agency.

Other Types of State Financial Regulators

The state banking department is only one of several state financial regulators. Other state financial regulatory bodies include state insurance regulators and state securities regulators. State securities regulators play a particularly important role in regulating investment advisors.

Most financial advisors do not have to register with the Securities and Exchange Commission (SEC), and they are not governed by the state banking department. If you have a question or complaint about a financial advisor, the North American Securities Administrators Association (NASAA) maintains a list of state securities regulators.