Government regulatory agencies are those that are established by legislative bodies on a federal, regional, or local level. Their purpose is to translate laws regarding how organizations should ethically operate into practical requirements that businesses need to follow.
The US has what is known as a dual-banking system, with financial oversight split between federal regulatory agencies and state regulatory agencies.
State regulators are responsible for licensing, overseeing, and enforcing penalties against local banks. But they are also responsible for supervising money services businesses and other non-bank financial services, such as insurance. This allows them to use their knowledge of local community situations and needs to craft regulations that not only ensure financial institutions are operating legally and ethically but also promote economic development in the area.
Federal regulators, meanwhile, provide an overall framework for addressing risks common across the US financial industry. This includes insurance for depositor assets if a bank fails; consumer protection against fraud and other illegal or unethical financial practices; and ensuring the US economy remains stable.
Many US financial regulators have some degree of independence from the government. We’ll briefly discuss that below.
Independent Regulatory Agencies
An independent regulatory agency is an oversight committee created by a federal government and given similar rule-making, moderation, and enforcement authority. However, its mandate gives it a certain level of autonomy from the current ruling administration. Notably, its leaders are appointed for fixed terms, and can’t be removed from their positions without cause.
Independent regulatory agencies also tend to have staffing structures that limit how many employees can be appointed from the current administration. This leaves more room for impartial experts in the agency’s field of jurisdiction, as opposed to politicians who may have partisan goals.
How Do Independent Regulatory Agencies Influence the U.S. Government?
Independent regulatory agencies influence the US government by providing it with non-partisan assistance in the administration of certain industries. In other words, they ensure that parts of the economy are not directly controlled by the government’s executive branch. This helps to drive the US economy with sound economic policies, free of political influence.
A List of Important Government Regulatory Agencies in Banking and Finance
Some of the key US government regulatory agencies for finance are the following:
- Federal Reserve System: The central bank of the US that regulates the American financial system and monetary policy. It also oversees some regional and thrift banks, as well as branches of foreign banks operating in the US.
- Federal Deposit Insurance Corporation (FDIC): Provides limited insurance on bank depositors’ assets in case a bank fails. Also supervises regional banks that don’t fall under the purview of the Federal Reserve System.
- Office of the Comptroller of the Currency (OCC): Regulates national US banks, money services businesses, and their subsidiaries.
- Securities and Exchange Commission (SEC): Regulates US stock exchanges and stockbrokers, as well as supervises stock market self-regulatory organizations.
Note that other countries have their own regulatory government agencies for banking and finance. Some examples include:
- Canada: Bank of Canada, Canada Deposit Insurance Corporation (CDIC), Office of the Superintendent of Financial Institutions (OSFI)
- United Kingdom: Bank of England, Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA)
- Australia: Reserve Bank of Australia, Australian Prudential Regulation Authority (APRA), Australian Securities and Investments Commission (ASIC)
