Regulatory Functions

 

As a bank regulator, the Federal Reserve establishes standards designed to ensure that banking organizations operate in a safe and sound manner and in accordance with applicable law. These standards may take the form of regulations, rules, policy guidelines, or supervisory interpretations and may be established under specific provisions of a law or under more general legal authority. Regulatory standards may be either restrictive (limiting the scope of a banking organization’s activities) or permissive (authorizing banking organizations to engage in certain activities).

In many cases, the Federal Reserve Board’s regulations are adopted to implement specific legislative initiatives or requirements passed by Congress. These statutory provisions may have been adopted by Congress to respond to past crises or problems or to update the nation’s banking laws to respond to changes in the marketplace. For example, in response to the savings and loan crisis and financial difficulties in the banking industry in the late 1980s and early 1990s, Congress enacted several laws to improve the condition of individual institutions and of the overall banking indus­try, including the Competitive Equality Banking Act of 1987; the Financial Institutions Reform, Recovery, and Enforcement Act of 1989; and the Federal Deposit Insurance Corporation Improvement Act of 1991. These legislative initiatives restricted banking practices, limited supervisors’ discretion in dealing with weak banks, imposed new regulatory requirements including prompt corrective action and strengthened supervisory oversight overall.

More recently, Congress has adopted other laws to respond to the growing integration of banking markets, both geographically and functionally, and the increasing convergence of banking, securities, and insurance activities. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 significantly reduced the legal barriers that had restricted the ability of banks and bank holding companies to expand their activities across state lines. In 1999, Congress passed the GLB Act, which repealed certain Depression era banking laws and permitted banks to affiliate with securities and insurance firms within financial holding companies.

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