Who Rules Financial Institutions? A Guide to U.S. Banking Regulatory Agencies

The U.S. banking system is vast and complex. As of late 2023, there were about 4,600 FDIC-insured banks and savings institutions holding $23.4 trillion in assets. That's a lot of money to keep track of, right?

Oversight is actually fragmented among multiple regulators. For example, four different federal agencies (the Federal Reserve, FDIC, OCC, and NCUA) all share responsibility for banks' safety and soundness. You might be wondering why so many regulators are needed - and it's a fair question.

Post-2008 reforms have certainly strengthened the system. For instance, in the 2023 Fed stress tests, all 23 large banks remained above minimum capital requirements despite a projected $541 billion in losses under a severe recession scenario. So things are getting better, but the complexity remains.

We've seen regulators take extraordinary measures when needed. In March 2023, they invoked a "systemic risk exception" to fully protect all depositors (including uninsured balances) at two failing banks – Silicon Valley Bank and Signature Bank – to stem broader financial contagion.

All of that can be overwhelming. That's why knowing who regulates what is so important for ensuring compliance across all your marketing materials and communications. Let's dive into the key players.

Who Are the Key Regulators in U.S. Banking?

U.S. banking regulation is divided among federal and state agencies. The key federal regulators include:

• The Federal Reserve (oversight of bank holding companies and state-chartered member banks)
• The Federal Deposit Insurance Corporation (FDIC) (insurer and supervisor of state non-member banks)
• The Office of the Comptroller of the Currency (OCC) (charterer and supervisor of national banks and federal thrifts)
• The National Credit Union Administration (NCUA) (for credit unions)
• The Consumer Financial Protection Bureau (CFPB) (leads consumer financial protection)

Each plays a distinct role – for example, the Fed, FDIC, OCC, CFPB, and NCUA collectively form the FFIEC (Federal Financial Institutions Examination Council) to coordinate examination standards.

State banking departments also regulate state-chartered banks in parallel with federal agencies. In short, U.S. banks may have multiple regulators, reflecting a dual federal-state banking system.

Role of the Federal Reserve System

The Federal Reserve ("the Fed") serves a dual mission: monetary policy and bank supervision. On the monetary side, it sets interest rates to pursue its dual mandate of stable prices and maximum employment – for instance, by mid-2023 the Fed had raised its benchmark rate to a 22-year high of 5.25–5.50% to combat inflation (bringing inflation down to ~3.7% by late 2023, from 9.1% in mid-2022).

On the supervisory side, the Fed oversees bank holding companies and state member banks (those that join the Federal Reserve System). It supervises a wide range of institutions scaled by size/risk – from 8 U.S. global systemically important banks (G-SIBs) with $14.9 trillion in assets to thousands of community banks.

In 2023, Fed examiners intensified reviews of banks' liquidity and interest-rate risk preparedness in light of rising rates. The Fed also wields enforcement powers: it completed 63 formal enforcement actions in 2023, assessing over $542 million in civil money penalties against institutions and individuals for violations.

Critically, the Fed conducts annual stress tests on large banks as a systemic safeguard – in 2023, all 23 major banks passed the Fed's stress test, staying above required capital minimums even under a hypothetical $540+ billion loss scenario.

Through monetary policy, supervision, enforcement, and macroprudential oversight, the Federal Reserve plays a central role in U.S. financial stability.

Responsibilities of the Federal Deposit Insurance Corporation (FDIC)

The FDIC protects bank depositors and manages bank failures. It insures deposits up to $250,000 per depositor, per bank by law – a coverage that fully protects over 99% of all deposit accounts (though uninsured deposits still accounted for nearly 47% of total U.S. bank deposits by value at their 2021 peak).

The FDIC supervises roughly 2,946 state-chartered banks that are not Fed members (as of Dec. 2023) and examines their safety and soundness on regular cycles.

Crucially, the FDIC has resolution authority for failed banks. In 2023, it intervened in several high-profile collapses: in March, the FDIC was appointed receiver for Silicon Valley Bank and Signature Bank and, with Treasury and Fed approval, invoked a "systemic risk" exception to guarantee all deposits at those banks (far exceeding the $250k limit) to prevent a wider panic.

Later, the FDIC facilitated the sale of First Republic Bank after its failure in May 2023. These three failures – among the largest in U.S. history – were estimated to cost the FDIC's insurance fund about $31.5 billion (roughly $18.5 billion for SVB/Signature, mainly to cover uninsured deposits, plus $13 billion from First Republic's resolution).

Despite such losses, no insured depositor has ever lost money since the FDIC's founding. The FDIC also actively plans for orderly bank resolutions to maintain stability. In sum, the FDIC's responsibilities span deposit insurance, bank supervision, and failure management – most visibly, ensuring that bank customers quickly get access to their insured funds (and sometimes even uninsured funds, in systemic emergencies) when a bank fails.

Functions of the Office of the Comptroller of the Currency (OCC)

The OCC is the regulator for national banks (and federal savings associations). It charters new national banks and examines existing ones for compliance and safety. The OCC supervises about 1,040 banks – including large national banks and federal thrifts – which together hold roughly $16 trillion in assets (about 66% of all U.S. commercial banking assets).

It approves or denies bank charter applications, mergers, and other corporate changes for national banks. The OCC has a cadre of ~2,400 examiners who perform on-site exams and continuous monitoring of these institutions.

In terms of enforcement, the OCC can issue orders and civil penalties for violations. In 2024, the OCC took 156 enforcement actions against banks, addressing issues like unsafe practices and consumer compliance. It also can impose "cease and desist" orders, civil money penalties, or removal of bank officers when warranted.

The OCC's oversight scope ranges from the largest national bank (JPMorgan Chase) to small community national banks, so it tailors its supervision accordingly. It watches national banks adhere to capital requirements, consumer protection laws, and anti-money-laundering rules, among others.

The agency also tracks industry trends – for example, recent OCC guidance has focused on risks in fintech partnerships, cryptocurrency custody, and climate risk management for banks. 

Overall, the OCC's key functions are chartering and licensing, prudential supervision of national banks, and enforcement of banking laws to guarantee the federal banking system remains safe and sound.

How Do Regulators Regulate Financial Institutions?

Bank regulators employ a supervisory framework of regular examinations, ratings, and corrective actions. They conduct on-site exams of each bank, evaluating factors like Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk – the well-known CAMELS rating system.

Examiners assign confidential CAMELS ratings on a 1 (strong) to 5 (poor) scale for each component and overall composite condition. Most healthy banks are rated "1" or "2". Typically, large banks receive a full-scope exam annually, while smaller well-rated banks can be examined on an 18-month cycle (per 2018 law, banks under $3 billion in assets with CAMELS 1–2 are eligible for longer exam cycles).

Regulators also do targeted exams and continuous monitoring between full exams, especially for large or higher-risk firms. They issue supervisory letters or reports of examination detailing any deficiencies. Banks with issues may be assigned a lower rating and must remediate problems; if serious, regulators can enforce action (agreements, orders, fines).

Beyond traditional exams, regulators use stress tests and capital reviews for big banks. The Federal Reserve's CCAR/DFAST stress tests annually project how large banks' balance sheets would fare under severe recessions – helping banks hold enough capital to absorb losses (in 2023, the tested banks' aggregate common equity ratio was projected to remain well above minimums).

Regulators also impose capital and liquidity standards (e.g. Basel III rules) that banks must meet at all times, which examiners verify.

In recent years, agencies have adapted to emerging sectors – for instance, fintech oversight. In 2023 the Fed created a "Novel Activities Supervision Program" to heighten oversight of bank engagements in crypto-assets, blockchain, and complex fintech partnerships. Similarly, the OCC has issued guidance on banks' fintech risk management and the FDIC on third-party partnerships.

Regulators are also integrating IT and cybersecurity exams, given the digitalization of banking. They coordinate via the FFIEC to issue common examination guidance (on cybersecurity, fintech, etc.).

In summary, regulators regulate through a combination of on-site examinations (with CAMELS ratings), continuous off-site monitoring, mandated financial standards (capital, liquidity, etc.), and specialized stress testing. They can take enforcement actions if institutions don't correct weaknesses identified. This framework, continually refined, seeks to catch issues early and promote safe, sound operation of financial institutions even as new products and technologies emerge.

Overview of Banking Regulatory Agencies

Federal Reserve Board (Fed): Oversees ~4,000 bank holding companies and all state-chartered banks that opt into the Federal Reserve System ("state member banks"). Also regulates U.S. branches of foreign banks. The Fed's Board of Governors in Washington sets policy; bank supervision is carried out mainly by examiners at the 12 Federal Reserve Banks. Budget: The Fed's supervisory budget is not appropriated; it is funded by bank assessments and Fed revenues (the Fed's total 2023 operating expenses were capped at $750.9 million for CFPB transfers, but the Fed's broader supervision costs exceed that). Staff: The Fed had about 3,000+ supervision staff across the system (approximate). It also houses a Vice Chair for Supervision to guide regulatory priorities.

Federal Deposit Insurance Corporation (FDIC): Primary federal regulator for ~2,950 state non-member banks (institutions chartered by states that are not Fed members). Manages the Deposit Insurance Fund (target reserve ratio 1.35%). Budget: ~$2.8 billion in operating expenditures in 2023. Staff: 5,952 full-time employees at end of 2023 (up 6% from 2022), including examiners in regional offices nationwide. The FDIC is funded by assessments on banks (not taxpayer funds). It also employs specialists in bank resolutions.

Office of the Comptroller of the Currency (OCC): Regulates ~1,040 national banks and federal thrifts with $16 trillion in assets (≈66% of U.S. bank assets). An independent bureau of the Treasury Department. Budget: $1.289 billion (FY 2024), funded by fees on banks. Staff: Around 3,500 (including 2,413 commissioned examiners) located in 76 field offices. The OCC is led by the Comptroller of the Currency and has no appropriated funds.

National Credit Union Administration (NCUA): Regulates and insures federally insured credit unions (~4,645 institutions). Administers the National Credit Union Share Insurance Fund (NCUSIF). Budget: ~$350 million (operating budget). Staff: Approximately 1,200 employees in 3 regions. NCUA is funded by credit union fees and insurance fund earnings. It charters federal credit unions and collaborates with state regulators for state-chartered, federally insured credit unions.

Consumer Financial Protection Bureau (CFPB): Independent regulator for consumer financial protection across banks and non-banks. Budget: funded by Fed transfers (up to $750.9 million in FY2023 by law); it spent ~$924 million in FY2024. Staff: ~1,677 employees in FY2023. The CFPB supervises large banks (>$10 billion) and certain non-banks for compliance with consumer laws, and enforces rules on credit cards, mortgages, lending, debt collection, etc. It is led by a single Director.

These agencies often overlap – e.g. a national bank is supervised by OCC for safety and soundness, by the Fed if it has a holding company, by FDIC for deposit insurance, and by CFPB for consumer compliance. To coordinate, regulators participate in the FFIEC (all five federal agencies + state liaison) for uniform exams, and the Financial Stability Oversight Council (FSOC) (Treasury, Fed, OCC, FDIC, CFPB, NCUA, SEC, CFTC, FHFA, etc.) to monitor systemic risks. Each agency also has distinct focuses and expertise, as reflected above.

Process of Regulatory Authority in Banking

With multiple regulators in the U.S., coordination and clear jurisdiction are vital. Overlapping authority is managed through formal and informal mechanisms: for instance, banks have a designated "primary" federal regulator (Fed, OCC, or FDIC) based on their charter, but regulators coordinate exams for institutions under multiple jurisdictions. They often alternate examination cycles for state banks (a state agency exam one year, federal exam the next).

At the systemic level, the Financial Stability Oversight Council (FSOC) was created by the Dodd-Frank Act to bring together 10 regulators (Fed, FDIC, OCC, CFPB, NCUA, SEC, CFTC, FHFA, Treasury, and an independent insurance expert) under the Treasury Secretary's chairmanship. FSOC meets regularly to share information and identify emerging threats to financial stability – it can designate non-bank financial firms or payment systems as systemically important, which then subjects them to Fed oversight or risk-management standards.

For day-to-day coordination, agencies sign Memoranda of Understanding (MOUs) to share data and avoid duplicative supervision. The FFIEC provides a formal channel for aligning supervisory policies (e.g. common examination rating systems, joint training of examiners).

In practice, if a banking organization spans multiple regulators (say a bank holding company supervised by the Fed owns a national bank supervised by OCC), exam teams from both agencies will confer on findings.

When gaps or disputes arise, they can be escalated. In 2023, policymakers renewed discussions on streamlining oversight after the bank failures, noting that fragmentation may have delayed recognition of risks. The GAO has long labeled U.S. financial regulation as "fragmented and complex" and urged better interagency collaboration.

FSOC is one forum to address this – e.g., in 2023 FSOC proposed guidance to more easily designate risky non-bank entities for Fed supervision, to watch that no important firm falls through cracks. Agencies also coordinate on enforcement (for example, joint CFPB-OCC actions against banks).

Bottom line: regulatory authority is parceled out by charter type and function, but mechanisms like FSOC and FFIEC exist to manage overlaps. After the 2008 crisis, these coordination tools were strengthened (FSOC did not exist pre-2010). The process of regulatory oversight in U.S. banking is one of multiple agencies "sharing the watch," requiring continual communication. Through councils, joint rules, and information-sharing agreements, regulators strive to present a united front – especially on systemic issues that cut across the financial system.

Impact of Federal Banking Regulations

‍

More than a decade on from Dodd-Frank and Basel III, evidence shows U.S. banks are better capitalized and more resilient, though at the cost of somewhat lower risk-taking. Big banks today hold higher loss-absorbing capital – for example, the largest U.S. banks' common equity Tier 1 capital ratios averaged about 12.7% at end-2023, roughly double the levels before 2008.

Regulators credit post-crisis reforms for strengthening stability: "the U.S. banking system remains resilient... due to reforms made after the financial crisis that ensured better safeguards," noted a 2023 joint statement by Treasury, the Fed, and FDIC. Those safeguards (like stress testing and living wills) have helped major banks withstand recent shocks – as seen in 2023 when banks weathered market turmoil without widespread failures outside the few firms with glaring mismanagement.

At the same time, compliance with tougher rules has some economic trade-offs. Industry studies suggest that increasing bank capital requirements can raise banks' costs and potentially reduce loan growth. In 2023, U.S. regulators proposed the "Basel III endgame" capital rules that would substantially hike capital requirements for large banks. Estimates show globally systemic banks (G-SIBs) might see a ~21% increase in required capital under these new rules (vs ~10% for regionals). While this would further fortify bank buffers, banking trade groups warn it could make lending more expensive or push more lending to non-bank financiers.

In fact, a notable trend has been the migration of some lending and trading activity to less-regulated non-banks ("shadow banks"), partly as banks pulled back to meet stricter requirements. An FDIC white paper in 2023 cautioned that such shifts – e.g. private credit funds expanding as banks face higher capital – could pose new risks that are harder for regulators to monitor.

Studies on specific rules show nuanced impacts. The Volcker Rule (which limits proprietary trading by banks) is cited for reducing banks' risk exposure, but market-makers argue it initially hurt bond market liquidity. The Community Reinvestment Act (CRA), strengthened by Dodd-Frank, has directed more bank lending to underserved areas, though measuring its economic impact is complex. Stress testing requirements are widely seen as improving risk management: academic research finds that banks subject to CCAR stress tests became more robust and had lower probabilities of distress, albeit potentially curbing aggressive lending.

On balance, federal banking regulations since the crisis have made the system safer and banking capital levels higher, which has generally been positive for U.S. financial stability (evidenced by the absence of a systemic banking meltdown during the 2020 COVID shock or 2023 rate spike). Regulators are now fine-tuning these rules – tailoring some requirements for community banks to relieve burden, while tightening rules for mid-size and large banks after observing gaps (as with Silicon Valley Bank's interest-rate risk).

Going forward, we may see incremental adjustments rather than wholesale deregulation. For example, in 2023 regulators signaled new long-term debt mandates for regional banks to bolster resolution options.

In summary, federal banking regulations (Dodd-Frank, Basel III, stress tests, etc.) have had their intended effect of increasing bank resilience and reducing systemic risk, though with side effects like more compliance costs and growth of non-bank lending. Recent studies and policy moves reflect an ongoing effort to calibrate these rules – balancing financial stability benefits against economic costs – as the banking sector and market environment evolve.

What Is the Role of Credit Unions in the Banking System?

Credit unions are an integral part of the U.S. financial system, providing not-for-profit, member-owned alternatives to banks. As of 2023, there were roughly 4,600 federally insured credit unions nationwide serving about 137.7  million members. While individual credit unions tend to be smaller than commercial banks, the sector's collective footprint is massive – total assets of federally insured credit unions reached about $2.2 trillion by Q3 2023. This is roughly 1/10th of U.S. banking assets, illustrating that credit unions play a sizable niche, especially in consumer lending.

Credit unions are distinctive in their mission and structure. They are cooperatives organized around a field of membership (such as employees of a company, members of an association, or residents of a community). Profits are returned to members via lower loan rates, higher deposit yields, or lower fees. For example, credit union credit cards and auto loans often carry lower interest rates than those at banks.

Credit unions focus heavily on consumer finance – mortgages, auto loans, credit cards, and savings accounts – and less on commercial lending (although business lending by credit unions has grown in recent years within regulatory limits).

In terms of stability, credit unions collectively are well-capitalized and tend to have low loss rates. They navigated the pandemic era with strong balance sheets, and their average net worth ratio stood around 10.7% in late 2023, comparable to bank capital ratios. The NCUA insures credit union deposits up to $250,000, the same protection as FDIC for banks.

Overall, credit unions complement banks by focusing on member service over profits. They hold about 13% of all U.S. household savings and originate a sizable share of consumer loans (over 30% of auto loans, for instance).

National Credit Union Administration: An Overview

The NCUA is the federal agency that charters, regulates, and insures federal credit unions, and insures (with some supervision) most state-chartered credit unions as well. Similar to the FDIC for banks, NCUA operates the National Credit Union Share Insurance Fund (NCUSIF), which insures members' deposits up to $250,000 per account.

NCUA's oversight involves periodic examinations (usually annually) of credit unions to check safety and soundness, similar to bank exams with CAMEL ratings. As of 2023, NCUA directly supervised ~2,900 federal credit unions and, in coordination with states, insured an additional ~1,700 state credit unions.

Comparison with State-Chartered Banks

About one-third of U.S. banks are state-chartered banks, which can be further split into those that choose to be Fed members (supervised by the Fed) and those that do not (supervised by the FDIC). In terms of market share, state-chartered banks collectively hold roughly 34% of U.S. commercial banking assets, while federally chartered national banks (OCC-supervised) hold about 66%.

From a risk perspective, state and national banks operate under essentially the same capital and prudential standards. Both types are evaluated using CAMELS ratings and must meet the same regulatory ratios.

A notable difference lies in the exam processes and oversight layers. State-chartered banks are examined by both their state regulator and a federal regulator (FDIC or Fed). Typically, these agencies alternate exams or conduct joint exams, sharing information. By law, every insured state bank must be examined at least once every 12 months (18 months for smaller well-rated banks).

How Are Bank Holding Companies and Financial Institutions Managed?

Bank holding companies (BHCs) – corporate parents that own one or more banks – are principally supervised by the Federal Reserve. The Fed oversees about 3,600+ holding companies on a consolidated basis, meaning it evaluates the entire organization's capital, risk management, and non-bank subsidiaries to make sure the holding company doesn't take actions that undermine its bank.

Under the longstanding "source of strength" doctrine (now law via Dodd-Frank), a holding company must serve as a financial backstop for its subsidiary bank. The Fed can and does force holding companies to inject capital or resources into troubled banks if needed. For example, during 2023's turmoil, the Fed closely monitored holding companies of midsize banks for their ability to support liquidity needs.

Enforcement actions can be applied at the holding company or bank level. A notable case in 2023: the Fed issued a cease-and-desist order against FBH Corporation, the holding company of a small bank (Farmington State Bank in Washington), after the bank improperly changed its business plan to serve crypto firms without approval.

What is the Federal Reserve Board's Role?

The Federal Reserve Board (FRB) in Washington, D.C. is the governing body of the Federal Reserve System, and it wields substantial authority over U.S. financial regulation and policy. The Board consists of seven Governors (though there may be vacancies) who are appointed by the President and confirmed by the Senate.

The FRB directs monetary policy – notably, the Board (with the FOMC) sets the target federal funds rate. In 2023, this meant engineering rapid rate increases to tame inflation, with the Board holding rates at a 22-year high (5,25 - 5.50%) as of September 2023 when inflation was still above target.

Beyond monetary policy, the Board has critical regulatory and supervisory priorities. The Vice Chair for Supervision (a Board Governor) leads the agenda on bank oversight. The FRB votes on major regulatory rules – such as capital requirements, stress testing frameworks, and merger approvals.

What Is the Consumer Financial Protection Bureau?

The Consumer Financial Protection Bureau (CFPB) is a federal agency dedicated to protecting consumers in financial markets. Created in 2010 by the Dodd-Frank Act, the CFPB was established to consolidate consumer protection authorities that were previously scattered across various regulators, providing a "single point of accountability" for enforcing consumer finance laws.

Structure and funding: The CFPB is an independent bureau of the Federal Reserve, led by a sole Director who serves a 5-year term. Uniquely, the CFPB is funded by the Federal Reserve's earnings (not annual Congressional appropriations), with a cap of 12% of Fed 2009 expenses (about $750.9 million for FY2023).

Activities: The CFPB has three main functions – rulemaking, supervision, and enforcement – plus consumer education. It writes regulations to implement federal consumer finance laws. It supervises institutions: banks with over $10 billion in assets fall under CFPB exam authority for consumer compliance, as do certain large nonbanks. And the CFPB brings enforcement actions against companies for violating consumer protection laws.

2023–2025 priorities and cases: Under Director Rohit Chopra (since 2021), the CFPB has aggressively targeted so-called "junk fees" – arbitrary or excessive fees charged by banks and others. In July 2023, it took a high-profile action against Bank of America for illegally double-charging NSF fees, withholding credit card rewards, and opening unauthorized accounts. CFPB ordered BoA to pay $100 million in consumer refunds and $90 million in penalties (with another $60 million fine levied by the OCC).

Final Thoughts

The complex web of U.S. banking regulators creates quite some compliance challenges for financial institutions, especially when it comes to marketing and communications. With so many overlapping authorities, a single misstep can trigger action from multiple agencies.

For financial marketers, it means that all marketing assets – from website copy to email campaigns to social media posts – must comply with a patchwork of regulations from different agencies. This is where Luthor comes in. Our AI-based marketing compliance tool helps you automatically review marketing assets following regulatory requirements across all relevant agencies. By scanning your content against an updated database of financial regulations and compliance standards, Luthor can identify potential issues before they become problems.

With Luthor, you can:

• Scan marketing materials for compliance with regulations from all major financial regulators
• Identify potential compliance issues in real-time, before publication
• Track changes in regulations that might affect your marketing approach
• Maintain comprehensive records of compliance checks for audit purposes
• Reduce the time your compliance team spends on manual reviews

Financial regulation isn't getting any simpler. The trend is toward more oversight, not less, especially in areas like consumer protection, fair lending, and digital marketing.  Request a demo today to see how Luthor can transform your marketing compliance process.