What Is Regulation G?
Regulation G refers to a rule enforced by the Federal Reserve System that requires banks, their affiliates, and their subsidiaries to publicly disclose written agreements with nongovernmental entities or persons as they pertain to the Community Reinvestment Act. The regulation is officially known as the Disclosure and Reporting of CRA-Related Agreements. Under Regulation G, any agreements of this kind must be submitted to the applicable federal banking agency and followed up on annually.
- The Federal Reserve has a series of rules in place that are established to govern banking institutions.
- Regulation G is a Fed rule that requires disclosure of a bank's compliance with anti-discriminatory lending laws.
- Under Regulation G, banks must disclose any written agreements with nongovernmental entities or persons as they pertain to the Community Reinvestment Act of 1977.
- The Act mandated an end to discriminatory lending practices.
- Regulation G is a federal rule that covers all banks insured by the FDIC.
Understanding Regulation G
The Federal Reserve is the central bank of the United States. One of its main responsibilities is to ensure that the country's financial system is safe, sound, and transparent. As such, it has established a number of regulations by which all member banks must abide. These rules range from the handling of checks and funds transfers to the disclosure of information to the public.
Regulation G governs the disclosure and reporting of agreements related to the federal Community Reinvestment Act. The 1977 law was aimed at reducing discriminatory lending practices that denied loans to prospective homeowners and small business owners in low- and moderate-income neighborhoods. Put simply, it ensures that banks abide by anti-discriminatory lending practices.
The CRA essentially requires banks to make a good-faith effort to extend loans to qualified individuals and business people in low- and moderate-income neighborhoods. Lenders are also mandated to report regularly on those efforts to the appropriate banking agency. The regulations are enforced by the same agencies that approve applications by banks to open new branches or merge with another institution. Their compliance with CRA is a factor to be considered.
The regulation also fulfills some requirements of the Gramm-Leach-Bliley Act. That 1999 law, also known as the Financial Modernization Act, removed barriers to a single company offering banking, investment, and insurance products under one umbrella, and led to the giant financial institutions of the modern era.
The Securities and Exchange Commission (SEC) also has a Regulation G and shouldn't be confused with the one established by the Fed. The SEC's Regulation G addresses public companies' disclosure or release of information that is not calculated or presented in accordance with generally accepted accounting principles (GAAP). It states that any company releasing non-GAAP financial information must include "a presentation of the most directly comparable GAAP financial measure and a reconciliation of the disclosed non-GAAP financial measure to the most directly comparable GAAP financial measure."
Regulation G: What's Covered and Not Covered
Regulation G applies to cash payments, grants, or other considerations that exceed $10,000 per calendar year. This amount does not include loans. However, it does apply to loans that total more than $50,000 per calendar year. In this case, state member banks, bank holding companies, and savings and loan holding companies with deposits must be insured by the Federal Deposit Insurance Company (FDIC).
The rules governing covered agreements do not include individual loans secured by real estate. They also do not cover extensions of credit to the following:
- Other entities
Regulation G’s definition of covered agreements does not apply if the funds in question are loaned at rates that are not substantially below market rates. The rule also does not apply if the loan application or documentation does not indicate the borrower intends to use the funds to make a loan or extend credit to any third parties.
How Regulation G Is Applied
Covered agreements that must be reported under Regulation G include any contract, arrangement, or understanding that is made in writing when the parties include one or more insured depository institutions or affiliates of an insured depository institution and one or more nongovernment entity or persons.
Regulation G applies if the agreement is made in connection with the fulfillment of the CRA. This includes agreements made with a nongovernmental entity or person that has issued CRA communications prior to entering into the agreement.
CRA communications are defined as written or oral comments issued to a federal banking agency regarding the sufficiency of a bank’s CRA performance, any affiliated insured depository institutions, or any CRA affiliate.
What Is Regulation G Intended to Do?
The Fed's Regulation G is intended to identify and govern the disclosure and reporting of written agreements (called covered agreements) with nongovernment entities or persons related to the Community Reinvestment Act. This law was passed to help curb discriminatory lending, which prevented certain individuals from getting financing to purchase homes as well as to small business owners in neighborhoods with low- to moderate incomes.
What's the Difference Between the Fed's Regulation G and That of the SEC?
The Federal Reserve and the SEC have rules in place that govern the organizations that come under their purview. Both have regulations named Regulation G. Both have to do with disclosure but are very different.
The Fed's Regulation G requires banks to make public disclosures about any contracts banks have with nongovernmental entities or persons as they pertain to the Community Reinvestment Act. The SEC's Regulation G, on the other hand, relates to corporate accounting practices. Under the rule, companies that don't report accounting under generally-accepted accounting principles must include comparable GAAP measures.
How Do Regulation G and Regulation GG Differ?
Both Regulation G and Regulation GG are Federal Reserve Board rules that cover two different topics relating to financial institutions.
Under Regulation G, banks and related entities must provide public disclosure about any written contracts with nongovernmental entities or persons as they relate to the Community Reinvestment Act.
Regulation GG, on the other hand, is a rule that requires American financial institutions with payment systems to set up checks and balances to prevent payments related to illegal online gambling.
The Bottom Line
As the country's central bank, the Federal Reserve has several major responsibilities. One of those is to regulate banks and other financial institutions that fall under its purview. Regulation G is a rule established by the Fed. It states that banks must disclose any written agreements or contracts they have with nongovernment entities or persons with respect to the Community Reinvestment Act. The law was enacted to cut down on discriminatory lending, especially for individuals and businesses in low- to moderate-income neighborhoods.