What Is a Banking Department?

C. Mitchell

In most contexts, the term “banking department” refers to a state-level agency in the United States that oversees all banks, credit lenders, and major financial brokers doing business within that state’s borders. Each of the U.S.’s 50 states has a banking department. Departments are in charge of regulating local bank activity and may also engage in fraud investigations and white collar crime inquiries when required. Some financial corporations, particularly those that count banks as clients, may also have an internal banking department or division. These types of banking departments are wholly distinct from government regulatory authorities.

Each of the U.S.'s 50 states has a banking department.
Each of the U.S.'s 50 states has a banking department.

A banking department usually has jurisdiction and authority over any credit union, portfolio lender, commercial bank, merchant bank, community trust, or savings and loan operation that does business with state residents. The basic job of a state banking department is to make sure that banks are operating in a fair, transparent, and non-discriminatory way. State legislatures pass banking laws, but it is the banking departments who both enforce and oversee those laws’ application. The specific duties of what a banking department does vary somewhat from state to state, but most of the department’s job is carried out in issuing banking licenses, inspecting financial records and loan histories, and conducting audits of bank performance.

As state government agencies, banking departments are usually as concerned with regulation as they are with outreach. On one hand, a department regulates the banking industry to ensure that the industry is following all the rules. At the same time, however, the whole reason that the department does any of this is to protect consumers and to allow state residents to take out loans, secure mortgages, and engage in private retail banking with confidence.

Most banking departments are limited to oversight and local law enforcement. States are not usually in the position to insure banks or to guarantee the fidelity of any investments that local banks hold. In the United States, banking insurance is a facet of national-level oversight.

The U.S.’s Federal Deposit Insurance Corporation (FDIC) is a national government agency that certifies banks as solvent and investment-worthy, then insures individual investments up to a certain amount. Should an insured bank fail, the FDIC would take on the value of all lost investments and would repay any individual who lost money. The FDIC usually works closely with state banking departments to keep banking institutions accountable.

Congress formed the FDIC with the Emergency Banking Act of 1933, near the end of the Great Depression. Banks during that period were routinely failing, costing investors hundreds of thousands of dollars in lost investments. As of 2011, since the FDIC’s formation, no insured banks have failed. This owes in part to the FDIC’s oversight, in part to individual state bank departments’ compliance and oversight efforts, and in part to Congressional appropriations and bailout measures.

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