Learning Objectives:

  • Understand the US banking regulatory structure.

  • Explain the key provisions of the Dodd-Frank Act.

  • Understand the roles of key US regulators.

3.1 The US Regulatory Structure

The US banking system is characterized by a multi-layered regulatory framework . As the University of Wisconsin-Whitewater course notes, US banking law has been described as “the world’s most bizarre, tangled financial regulatory system” . Key regulators include:

  • Federal Reserve: The central bank, responsible for monetary policy and regulating bank holding companies.

  • Office of the Comptroller of the Currency (OCC): Charters, regulates, and supervises all national banks.

  • Federal Deposit Insurance Corporation (FDIC): Insures deposits and supervises financial institutions for safety and soundness.

  • Consumer Financial Protection Bureau (CFPB): Enforces federal consumer financial laws and protects consumers in the financial marketplace .

3.2 The Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act was the US response to the 2008 financial crisis . Key provisions include:

  • The Volcker Rule: Restricts banks from proprietary trading and investing in hedge funds.

  • Consumer Financial Protection Bureau (CFPB): Established to oversee consumer financial products .

  • Enhanced Supervision: Systemically Important Financial Institutions (SIFIs) are subject to enhanced supervision and stress testing.

  • Transparency: Enhanced transparency on OTC swaps, securitisations, hedge funds, and mortgage brokers .

  • Risk Retention: Requires sponsors of securitisation to retain a portion of the credit risk (typically 5%) .

3.3 US Implementation of Basel Standards

The US Basel III Final Rule implements major aspects of the Basel III regime and incorporates changes required by the Dodd-Frank Act . US regulators have also introduced a supplementary leverage ratio (SLR) of 5% for US GSIBs (and 6% for their insured banks) .

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