Federal_Reserve_System
T
THE FEDERAL RESERVE HAS PRIMARY RESPONSIBILITY
for supervising and regulating several types of banking organizations:?
All bank holding companies, their nonbank subsidiaries, and their foreign subsidiaries ?State-chartered banks that are members of the Federal Reserve System (state member banks) and their foreign branches and
subsidiaries
?
Edge Act and agreement corporations, through which U .S.
banking organizations conduct operations abroad.It also shares important responsibilities with state supervisors
and with other federal supervisors, including overseeing both the operations of foreign banking organizations in the United States
and the establishment, examination, and termination of branches,agencies, commercial lending subsidiaries, and representative of-fices of foreign banks in the United States.
Other supervisory and regulatory responsibilities of the Federal
Reserve include
?
Regulating margin requirements on securities transactions ?
Implementing certain statutes that protect consumers in credit and deposit transactions ?
Monitoring compliance with the money-laundering provisions contained in the Bank Secrecy Act ?Regulating transactions between banking affiliates.
Regulation
he Federal Reserve has supervisory and regulatory authority over a wide range of financial institutions and activities.It works with other federal and state financial authorities to en-sure safety and soundness in the operation of financial institu-tions, stability in the financial markets, and fair and equitable treatment of consumers in their financial transactions.
○○○○○○○○○○○○○○○○○○
The hands-on experience of supervision and regulation provides the Federal Reserve with a base of essential knowledge for mon-etary policy deliberations. Further, its supervisory and regulatory roles enable the Federal Reserve to forestall financial crises or to manage crises once they occur. In the past decade, the experience and knowledge of examiners and supervisory staff proved instru-mental in the Federal Reserve’s responsiveness to the Mexican debt crisis of 1982, the collapse in 1985 of privately insured thrift institutions in Ohio and Maryland, the stock market crash of 1987, and the 1990 failure of the Drexel–Burnham investment firm.
Although the terms bank supervision and bank regulation are often used interchangeably, they actually refer to distinct, but comple-mentary, activities. Bank supervision involves the monitoring, in-specting, and examining of banking organizations to assess their condition and their compliance with relevant laws and regula-tions. When an institution is found to be in noncompliance or to have other problems, the Federal Reserve may use its supervi-sory authority to take formal or informal action to have the insti-tution correct the problems. Bank regulation entails making and issuing specific regulations and guidelines governing the struc-ture and conduct of banking, under the authority of legislation. The Federal Reserve shares supervisory and regulatory responsi-bilities with the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) at the federal level, with the banking agencies of the various states, and with foreign banking authori-ties for the international operations of U.S. banks and the opera-tions of foreign banks in the United States (see table 5.1). This structure has evolved partly out of the complexity of the U.S. fi-nancial system, with its many kinds of depository institutions and numerous chartering authorities. It has also resulted from a wide variety of federal and state laws and regulations designed to remedy problems that the U.S. commercial banking system has faced over its history.
In recent years, several factors—including rapidly changing con-ditions in the banking industry, problems within the savings and loan and banking industries, and legislative requirements—have
73S U P E R V I S I O N &R E G U L A T I O N Table 5.1
Federal supervisor and regulator of corporate components
of banking organizations in the United States
necessitated the increased coordination of regulatory efforts. An
important element in such coordination is the Federal Financial
Institutions Examination Council (FFIEC), established by statute
in 1978, consisting of the Chairpersons of the FDIC and the Na-
tional Credit Union Administration, the Comptroller of the Cur-
rency , the Director of the OTS, and a Governor of the Federal
Reserve Board appointed by the Board Chairman. The FFIEC’s
purposes are to prescribe uniform federal principles and stan-Component
Supervisor and Regulator Bank holding companies
FR National banks
OCC State banks
Members
FR Nonmembers
FDIC Cooperative banks
FDIC/FR Industrial banks (if insured)1
FDIC Section 20 affiliates
SEC/FR Thrift holding companies
OTS Savings banks
OTS/FDIC/FR Savings and loan associations
OTS Edge Act and agreement corporations
FR Foreign banks 2
Branches and agencies 3
State licensed
FR/FDIC Federally licensed
OCC/FR/FDIC Representative offices FR
Note . FR = Federal Reserve; OCC = Office of the Comptroller of the Cur-
rency; FDIC = Federal Deposit Insurance Corporation; SEC = Securities and
Exchange Commission; OTS = Office of Thrift Supervision
1. Uninsured industrial banks are supervised by the states.
2. Applies to direct operations in the United States. Foreign banks may also
have indirect operations in the United States through their ownership of U.S.
banking organizations.
3. The FDIC has responsibility for branches that are insured.
dards for the examination of depository institutions, to promote
coordination of bank supervision among the federal agencies that regulate financial institutions, and to encourage better coordina-
tion of federal and state regulatory activities. Through the FFIEC, state and federal regulatory agencies may exchange views on im-
portant regulatory issues. Among other things, the FFIEC has de-veloped uniform financial reporting forms for use by all federal
and state banking regulators.
Domestic Operations of U.S. Banking Organizations
The Federal Reserve’s off-site supervision of banking institutions involves the periodic review of financial and other information
about banks and bank holding companies. Information that the
Federal Reserve reviews includes reports of recent Array examinations and inspections, information pub-
lished in the financial press and elsewhere, and,
most important, the standard financial regulatory
reports that are filed by institutions. The reports
for banks are referred to as the Consolidated Re-
ports of Condition and Income (Call Reports) and
those for bank holding companies, as the Consoli-
dated Financial Statements for Bank Holding
Companies (FR Y-9 Series). The number and the type of report forms that must be filed depend on the size of an
institution, the scope of its operations, and the types of financial
entities that it includes. Therefore, the report forms filed by larger institutions that engage in a wider range of activities are gener-
ally more numerous and more detailed than those filed by
smaller organizations.
In its ongoing, off-site supervision of banks and bank holding
companies, the Federal Reserve uses automated screening sys-
tems to identify organizations that have poor or deteriorating fi-
nancial profiles and to help detect adverse trends developing in
the banking industry. The System to Estimate Examinations Rat-
ings (SEER) statistically estimates an institution’s supervisory rat-ing based on information that institutions provide in their quar-
terly Call Report filings. When SEER and other supervisory tools
identify an organization that has problems, a plan for correcting
the problems—which may include sending examiners to the insti-
tution—is developed.
75 S U P E R V I S I O N&R E G U L A T I O N
In on-site examinations of state member banks and inspections of
bank holding companies and their nonbank subsidiaries, the su-
pervisory staffs of the Federal Reserve Banks generally
?Evaluate the soundness of the institution’s assets and the ef-fectiveness of its internal operations, policies, and management ?Analyze key financial factors such as the institution’s capital, earnings, liquidity, and sensitivity to interest rate risk
?Assess the institution’s exposure to off-balance-sheet risks
?Check for compliance with banking laws and regulations
?Determine the institution’s overall soundness and solvency.
The Federal Reserve also evaluates transactions between a bank
and its affiliates to determine the effect of the transactions on the institution’s condition and to ascertain whether the transactions
are consistent with sections 23A and 23B of the Federal Reserve
Act. Section 23A prohibits, among other things, a bank from pur-
chasing the low-quality assets of an affiliate and limits asset pur-
chases, extensions of credit, and other enumerated transactions
by a single bank from a single affiliate to 10 percent of the bank’s
capital, or from all affiliates combined to 20 percent of its surplus. Moreover, section 23B requires that all transactions with affiliates
be on terms substantially the same as, or at least as favorable as,
those prevailing at the time with comparable non-affiliated com-
panies. The Federal Reserve is the only banking agency that has
the authority to exempt any bank from these requirements.
The Federal Reserve Board has consistently em-Array phasized the importance of its on-site examina-
tions and inspections in the supervisory process.
Policies regarding the frequency of examinations
and inspections are reviewed regularly to address
concerns of safety and soundness as well as of
regulatory burden on institutions under Federal
Reserve supervision. In response to banking and
other financial problems that developed in the 1980s, the Board in
1985 adopted a policy requiring the Reserve Banks to examine ev-
ery state member bank and inspect all large bank holding compa-
nies at least once every year. Subsequently, in 1991, Congress
passed the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA), which imposed the legal requirement that
all insured depository institutions be examined once every twelve months. (Certain small banks may be examined once every eigh-
teen months.) The Board’s policy is that large banks are to be ex-
amined by a Reserve Bank or jointly by a Reserve Bank and the responsible state banking agency; for smaller institutions, the Re-serve Banks may alternate years with the responsible state bank-ing agency. Board policy also requires that problem banks be exam-ined more frequently by Reserve Banks.
The Board’s policy regarding on-site inspections of bank holding companies also requires that companies that are large, have sig-nificant credit-extending nonbank subsidiaries or debt outstand-ing to the general public, or have severe problems be inspected annually. The remaining companies must be inspected at least once every three years, except for the smallest, least-complex bank holding companies, which may be inspected on a sample basis. The Federal Reserve also conducts special on-site examinations of banking organizations’ securities trading activities. Generally, se-curities trading activities of banking organizations are conducted in separately incorporated, nonbank entities directly or indirectly owned by bank holding companies. Such activities are governed by section 20 of the Banking Act of 1933 (the
Glass–Steagall Act), which prohibits banks that are
members of the Federal Reserve System from affili-
ating with entities that are “engaged principally” in
underwriting (that is, purchasing for resale) or oth-
erwise dealing in securities. In 1987, the Board ruled
that a company would not be engaged principally
in these activities if no more than 5 percent of its revenues were derived from underwriting or dealing in certain types of securities that banks are not eligible to trade (referred to as bank-ineligible securities). The subsidiaries in which such ac-tivities are conducted are commonly referred to as section 20 sub-sidiaries. As a result of the 1987 ruling, the Board approved pro-posals by banking organizations to underwrite and deal in specific types of securities (commercial paper, municipal revenue bonds, conventional residential mortgage-related securities, and securitized consumer loans) on a limited basis and in a manner consistent with existing banking statutes. Before the ruling, bank-ing organizations were restricted to underwriting and dealing in bank-eligible securities, such as government securities, general municipal obligations, and money market instruments. In 1989, the Board raised the percentage of permissible trading in bank-ineligible securities to 10 percent of revenues. It also expanded the range of permitted activities and approved applications by
77 S U P E R V I S I O N&R E G U L A T I O N
five banking organizations to underwrite and deal in any debt or
equity security (except mutual funds), subject to several condi-
tions, including reviews of the organization's management and operations. By year-end 1993, thirty-one foreign and domestic
banking organizations had established section 20 subsidiaries.
The Federal Reserve conducts on-site examinations of other bank
and nonbank activities: consumer affairs (see chapter 6 for a dis-
cussion of this area); trust activities; securities transfer agency ac-
tivities; activities by government and municipal securities deal-
ers; and electronic data processing.
If the Federal Reserve determines that a bank or bank holding
company has problems that affect the institution’s safety and
soundness or is out of compliance with laws and regulations, it
may take a supervisory action to ensure that the organization un-
dertakes corrective measures. T ypically, such findings are com-
municated to the management and directors of a banking organi-
zation in a written report. The management and directors are then requested to address all identified problems voluntarily and to
take measures to ensure that the problems are corrected and will
not recur. Most problems are resolved promptly after they are
brought to the attention of an institution’s management and di-
rectors. In some situations, however, the Federal Reserve may
need to take an informal supervisory action, by requesting that an institution adopt a broad resolution or agree to the provisions of a memorandum of understanding to address the problem.
If necessary, the Federal Reserve may take formal enforcement
actions to compel the management and directors of a troubled
banking organization or persons associated with it to address the organization’s problems. For example, if an institution has signifi-
cant deficiencies or fails to comply with an informal action, the
Federal Reserve may enter into a written agreement with the
troubled institution, or may issue a cease and desist order against
the institution or against an individual associated with the insti-
tution, such as an officer or director. The Federal Reserve may
also assess a fine, or remove an officer or director from office and permanently bar him or her from the banking industry, or both.
All written agreements issued after November 1990 and all cease
and desist orders, civil money penalty orders, and removal and
prohibition orders issued after August 1989 are available to the public.
International Operations of U .S. Banking Organizations
The Federal Reserve’s supervision and regulation of the interna-
tional operations of banking organizations that are members of
the Federal Reserve System entail four principal statutory respon-sibilities:
?
Authorizing the establishment of foreign branches of member banks and regulating the scope of their activities ?
Chartering and regulating the activities of Edge Act and agreement corporations ?Authorizing overseas investments by member banks, Edge
Act and agreement corporations, and bank holding compa-
nies, and regulating the activities of foreign firms acquired by
such investments
?
Establishing supervisory policy and practices with respect to
the foreign lending of member banks.Under federal law, U.S. banks may conduct a wider range of ac-tivities abroad than they may pursue in this country . The Federal Reserve Board has broad discretionary powers to regulate the overseas activities of member banks and bank holding companies so that, in financing U .S. trade
and investments overseas, U.S. banks can be fully
competitive with institutions of the host country .
In addition, through Edge Act and agreement cor-porations, banks may conduct deposit and loan business in U.S. markets outside their home states,provided that the operations of these corporations are related to international transactions.
The International Lending Supervision Act of 1983
directed the Federal Reserve and other U.S. banking agencies to
consult with the supervisory authorities of other countries to
adopt effective and consistent supervisory policies and practices
with respect to international lending. It also directed the banking agencies to strengthen the international lending procedures of
U .S. banks by , among other things, requiring an institution either to write off assets or to maintain special reserves when potential
or actual impediments to the international transfer of funds make it likely that foreign borrowers will be unable to make timely pay-ments on their debts.
79S U P E R V I S I O N &R E G U L A T I O N
U .S. Activities of Foreign Banking Organizations
Although foreign banks have been operating in the United States
for more than a century , before 1978 the U .S. branches and agen-
cies of these banks were not subject to supervision or regulation
by any federal banking agency . When Congress enacted the Inter-
national Banking Act of 1978 (IBA), it created a federal regulatory
structure for the U.S. branches and agencies of foreign banks. The
IBA established a policy of “national treatment” for foreign banks
operating in the United States to promote competitive equality
between them and domestic institutions. This
policy gives foreign banking organizations operat-
ing in the United States the same powers, and
subjects them to the same restrictions and obliga-tions, that apply to the domestic operations of U .S.banking organizations.Under the IBA, primary responsibility for the su-
pervision and regulation of branches and agencies
remained with the state or federal licensing authorities. The Fed-
eral Reserve was assigned residual authority to ensure national
oversight of the operations of foreign banks. Congress gave the
Federal Reserve examination authority over state-licensed U .S.
branches and agencies and state-chartered banking subsidiaries
of foreign banks but instructed it to rely , to the extent possible, on
the examinations conducted by the licensing authorities.
The Federal Reserve may not approve an application by a foreign
bank to establish a branch, agency , or commercial lending com-
pany unless it determines that (1) the foreign bank and any par-
ent foreign bank engage directly in the business of banking out-
side the United States and are subject to comprehensive
supervision or regulation on a consolidated basis by their home
country supervisors and (2) the foreign bank has furnished to the
Federal Reserve the information that the Federal Reserve requires
in order to assess the application adequately. The Federal Reserve
may take into account other factors such as (1) whether the home
country supervisor of the foreign bank has consented to the pro-
posed establishment of the U.S. office, (2) the financial and mana-
gerial resources of the foreign bank and the condition of any U.S.
office of the foreign bank, (3) whether the foreign bank’s home
country supervisor shares material information regarding the op-
erations of the foreign bank with other supervisory authorities, (4) whether the foreign bank and its U.S. affiliates are in compli-ance with applicable U.S. law, and (5) whether the foreign bank has provided the Federal Reserve with adequate assurances that information will be made available on the operations or activities of the foreign bank and any of its affiliates that the Federal Re-serve deems necessary to determine and enforce compliance with applicable federal banking statutes. In approving the establish-ment of a representative office by a foreign bank, the Federal Re-serve is required to take these standards into account to the extent deemed appropriate.
The Foreign Bank Supervision Enhancement Act of 1991 (FBSEA) increased the responsibility and the authority of the Federal Re-serve to examine regularly the U.S. operations of foreign banks. Under the FBSEA, all branches and agencies of foreign banks must be examined on-site at least once every twelve months. These examinations are coordinated with state and other federal banking agencies, as appropriate. Supervisory actions resulting from such examinations may be taken by the Federal Reserve act-ing alone or with other agencies.
Under the authority of the Bank Holding Company Act and the IBA, the Federal Reserve is also responsible for approving, re-viewing, and monitoring the U.S. nonbanking activities of foreign banking organizations. In addition, under an FBSEA amendment to the Bank Holding Company Act, a foreign bank must obtain Federal Reserve approval to acquire more than 5 percent of the shares of a U.S. bank or bank holding company.
As a bank regulator, the Federal Reserve establishes standards de-signed to ensure the safe and sound operation of financial institu-tions. These standards may take the form of regulations, rules, policy guidelines, or supervisory interpretations and may be es-tablished under specific provisions of a law or under more gen-eral legal authority. Regulatory standards may be either restric-tive (limiting the scope of a banking organization’s activities) or permissive (authorizing banking organizations to engage in cer-tain activities). (A complete list of Federal Reserve regulations is given in appendix B.)
81 S U P E R V I S I O N&R E G U L A T I O N
In response to the financial difficulties that the banking industry
faced in the late 1980s, 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 Improve-
ment Act of 1991. Because of the savings and loan crisis and a
general decline in the level of bank capital during the same pe-
riod, efforts to regulate the banking industry focused heavily on
defining the level of capital that is sufficient to enable an institu-
tion to absorb reasonably likely losses. In 1989, the federal bank-
ing regulators adopted a common standard for measuring capital
adequacy that is based on the riskiness of an institution’s invest-
ments. This common standard, in turn, was based on the 1988
agreement International Convergence of Capital Measurement
and Capital Standards (commonly known as the Basle Accord)
developed by the international Basle Committee on Banking
Regulations and Supervisory Practices.
The risk-based capital standards require institutions that assume
greater risk to hold higher levels of capital. Moreover, the risk-
based capital framework takes into account risks associated with
activities that are not included on a bank’s balance sheet, such as
the risks arising from commitments to make loans. Because they
have been accepted by the bank supervisory authorities of most
of the countries with major international banking centers, the
risk-based capital standards promote safety and soundness and
reduce competitive inequities among banking organizations oper-
ating within an increasingly global market.
Acquisitions and Mergers
Under the authority assigned to the Federal Reserve by the Bank
Holding Company Act of 1956, as amended, the Bank Merger Act
of 1960, and the Change in Bank Control Act of 1978, the Federal
Reserve Board maintains broad supervisory authority over the
structure of the banking system in the United States.
The Bank Holding Company Act of 1956 assigned primary re-
sponsibility for supervising and regulating the activities of bank
holding companies to the Federal Reserve. This act was designed
to achieve two basic objectives. First, by controlling the expansion
of bank holding companies, the act sought to avoid the creation of a monopoly or the restraint of trade in the banking industry. Sec-ond, it sought to keep banking and commerce separate by re-stricting the activities of bank holding companies to banking and closely related endeavors.
Bank Acquisitions
Under the Bank Holding Company Act, a firm that seeks to be-come a bank holding company must first obtain approval from the Federal Reserve. The act defines a bank holding company as any institution that directly or indirectly owns, controls, or has the power to vote 25 percent or more of any class of the voting shares of a bank; controls in any manner the election of a majority of the directors or trustees of a bank; or exercises a controlling in-fluence over the management or policies of a bank. An existing bank holding company must obtain the approval of the Federal
Reserve Board before acquiring more than 5 per-
cent of the shares of an additional bank. All bank Array holding companies must file certain reports with
the Federal Reserve System.
The Bank Holding Company Act limits the inter-
state operations of bank holding companies by
preventing them from acquiring a bank in a sec-
ond state unless the second state specifically au-thorizes the acquisition by statute. In recent years, most states have authorized such acquisitions, generally on a reciprocal basis with other states.
In considering applications to acquire a bank or a bank holding company, the Federal Reserve, carrying out legislative mandates, takes into account the likely effects of the acquisition on competi-tion, the convenience and needs of the community to be served, and the financial and managerial resources and future prospects of the bank holding company and its banking subsidiaries. Nonbanking Activities and Acquisitions
Through the Bank Holding Company Act, Congress prevented bank holding companies from engaging in nonbanking activities or from acquiring nonbanking companies, with certain excep-tions. The exceptions allow holding companies to undertake cer-
tain activities that the Federal Reserve determines to be so closely
related to banking or to managing or controlling banks as to be a
83 S U P E R V I S I O N&R E G U L A T I O N
“proper incident” to banking. In making this determination, the
Federal Reserve considers whether the exception to the prohibi-
tion can reasonably be expected to produce public Array benefits, such as greater convenience or gains in
efficiency, that outweigh possible adverse effects,
such as conflicts of interest or decreased competition.
By late 1993, the Federal Reserve had approved
more than two dozen activities for bank holding
companies that are closely related to banking, in-
cluding making, acquiring, or servicing loans or
other extensions of credit; supplying data process-
ing and transmission services; providing investment advice; and
engaging in securities brokerage activities.
Bank Mergers
Another responsibility of the Federal Reserve is to act on pro-
posed bank mergers when the resulting institution is a state
member bank. During the 1950s, the number of bank mergers,
several of which involved large banks in the same metropolitan
area, rose sharply. Fearing that a continuation of this trend could
seriously impair competition in the banking industry and lead to
an excessive concentration of financial power, Congress in 1960
passed the Bank Merger Act.
tween insured banks receive prior approval from the
agency under whose jurisdiction the surviving bank will
fall. It also requires that the responsible agency request reports
from the other banking agencies addressing applicable competi-
tive factors and from the Department of Justice to ensure that all
merger applications are evaluated in a uniform manner.
The Bank Merger Act sets forth the factors to be considered in
evaluating merger applications. These factors include the finan-
cial and managerial resources and the prospects of the existing
and proposed institutions, and the convenience and needs of the community to be served. The Federal Reserve may not approve
any merger that could substantially lessen competition or tend to
create a monopoly unless it finds that the anticompetitive effects
of the transaction are outweighed by the transaction’s probable
beneficial effects regarding the convenience and needs of the com-
munity to be served.
Other Changes in Bank Control
The Change in Bank Control Act of 1978 authorizes the federal
bank regulatory agencies to deny proposals from a person acting
directly or indirectly, or in concert with other persons, to acquire
control of an insured bank or a bank holding company. The Fed-
eral Reserve is responsible for changes in the control of bank
holding companies and state member banks, and the FDIC and
the OCC are responsible for such changes in the control of in-
sured state nonmember and national banks respectively. In con-
sidering a proposal under the act, the Federal Reserve must
review factors such as the financial condition, competence, exper-
ience, and integrity of the acquiring person or group of persons;
the effect of the transaction on competition; and the adequacy of
the information provided by the party proposing the change.
Other Regulatory Responsibilities
The Federal Reserve is also responsible for enforcing various laws and regulations that are related to fair and equitable treatment in
financial transactions (see chapter 6), to margin requirements in
securities and futures markets, and to recordkeeping and report-
ing by depository institutions.
Securities Regulation
The Securities Exchange Act of 1934 requires the Federal Reserve
to regulate the margin requirements in securities markets (that is,
requirements regarding purchase of securities on credit). Such
regulation was established in an effort to reduce price volatility
caused by speculation, to protect unsophisticated investors, and
to diminish the amount of credit used for speculation. However,
with the contemporary understanding of the dynamics of finan-
cial markets, the focus of margin requirements has become
mainly prudential, that is, to protect the soundness of the mar-
kets. In fulfilling its responsibility under the act, the Federal
Reserve limits the amount of credit that may be provided by secu-rities brokers and dealers (Regulation T), by banks (Regulation U), and by other lenders (Regulation G). These regulations generally
apply to credit-financed purchases of securities traded on securi-
ties exchanges and certain securities traded over the counter when the credit is collateralized by such securities. In addition, Regula-
tion X prohibits borrowers who are subject to U.S. laws from ob-
85 S U P E R V I S I O N&R E G U L A T I O N
taining such credit overseas on terms more favorable than could
be obtained from a domestic lender.
In general, compliance with the margin regulations is enforced by
several federal regulatory agencies. In the case of banks, the fed-
eral agencies regulating financial institutions check for Regulation
U compliance during examinations. Compliance with Regulation
T is verified during examinations of broker–dealers by the securi-
ties industry’s self-regulatory organizations under the general
oversight of the Securities and Exchange Commission. Compli-
ance with Regulation G is checked by the National Credit Union Administration, the Farm Credit Administration, the OTS, or the
Federal Reserve.
Futures T rading Practices Act
In 1992, section 501 of the Futures T rading Practices Act amended
the Commodity Exchange Act to require that any rule establish-
ing or changing the margin for a stock index futures contract or
for an option on such a futures contract be filed with the Federal Reserve. The purpose of this requirement is to foster the integrity
of the contract markets and to limit systemic risk that might re-
sult from a disturbance in the stock index futures market spilling
over to other markets. Consistent with the provisions of the act,
the Federal Reserve has delegated its authority with regard to
such activities to the Commodity Futures T rading Commission.
Bank Secrecy Act
The Bank Secrecy Act, enacted in 1970, requires financial institu-
tions doing business in the United States to report large currency transactions and to retain certain records. It also prohibits the use
of foreign bank accounts to launder illicit funds or to avoid U.S.
taxes and statutory restrictions. The Department of the Treasury
maintains primary responsibility for issuance of regulations
implementing this statute and for enforcement. However, the
Treasury Department has delegated responsibility for monitoring
the compliance of banks to the federal financial regulatory agen-
cies. Therefore, during examinations of state member banks and
of Edge Act and agreement corporations, Federal Reserve exam-
iners verify an institution’s compliance with the recordkeeping
and reporting requirements of the act and with related regulations.s