Financial institutions laws are the laws that banking, investment and other financial institutions are required to abide by. Primarily, these laws are in place to ensure fair financial and lending practices for consumers and that all banks and institutions are abiding by the same rules. In other words, it is the regulation of financial institutions. In the US, the Federal Deposit Insurance Corporation (FDIC) is one of the agencies involved in the regulation of financial institutions to ensure that each is abiding by the rules.
The number of laws and regulations that banks, credit unions and other financial institutions are so numerous that it would be impossible to list them all out. The regulation of financial institutions is an audit of each of the banks and financial institutions to make sure that each organization is in compliance with these laws or regulations.
According to Federal Reserve Chairman, Ben Bernanke, as of 2011, the federal government has adopted the Dodd-Frank legislation as way to regulate the financial industry and those businesses involved in financial services. The approach complements the typical supervision that the government uses to oversee financial institutions. Part of the Dodd-Frank legislation is the creation of the Financial Stability Oversight Council. The members of the council are state and federal financial regulators that help to identify and regulate financial risks.
The process of the regulation of financial institutions typically involves auditors going in to the bank and financial institution. The auditors examine all of the files and statements of the bank and financial institution to ensure that they are processing files in accordance with the laws and regulations that are in place for these types of processes and institutions.
For example, for banks and mortgage lending institutions, the mortgage application must ask the application specific questions, such as their race and citizenship status. The applicant does not have to answer these questions, but it is a federal requirement that lenders ask this information on their applications. This is to ensure that the lenders are in compliance of fair lending, which is just one of the many regulations that the auditors are looking for in the regulation of financial institutions.
Generally, financial institutions found not in compliance have an opportunity to correct the problem. If the institution does not correct the issue or it continues to be a problem, it can cause the institution to be fined or even shut down completely.