Banking is one of the most highly regulated industries in the United States. These regulations ensure banks are safe and secure for consumers and that they operate fairly and equitably. To start a bank, entrepreneurs must understand the rules and requirements of government agencies such as the FDIC.
This article will outline critical regulations and requirements for starting a bank in the United States.
Overview of New Bank Requirements
Let’s start by looking at an overview of requirements for new banks.
- The bank must have a charter from a state or the federal government.
- The bank must be insured by the Federal Deposit Insurance Corporation (FDIC).
- The bank must meet capital requirements set by the FDIC.
- The bank must have a board of directors.
- The bank must have a chief executive officer (CEO).
- The bank must establish and maintain internal control systems.
- The bank must have policies and procedures in place for managing risk.
- The bank must comply with the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations.
- The bank must have a compliance officer.
- The bank must protect the confidential information of its customers.
Now we can take a closer look at each.
Bank Charter
A bank charter is a document that grants the bank the authority to operate. There are two types of bank charters in the United States: state bank charters and federal bank charters.
The state banking regulator issues state bank charters. The requirements for state bank charters vary from state to state, but all states require that the bank be well capitalized and have a sound business plan.
Federal bank charters are issued by the Office of the Comptroller of the Currency (OCC). The requirements for federal bank charters are more stringent than state bank charters. In addition to being well capitalized, a bank must also have a demonstrated record of successful operation and management, a strong commitment to compliance with banking laws and regulations, and sufficient resources to meet the demands of its customers.
Insurance
The FDIC must insure all banks in the United States. This insurance protects depositors in case of bank failure. To be eligible for FDIC insurance, a bank must meet specific requirements, including being chartered by the federal government, maintaining a minimum level of capital, and having deposit insurance coverage in place.
Capital Requirements
Banks must meet specific capital requirements set by the FDIC. These requirements vary depending on the type of bank and the size of the bank. Generally, banks must maintain a Tier 1 capital ratio of at least 5%, a Tier 2 capital ratio of at least 10%, and a risk-based capital ratio of at least 15%.
Board of Directors
All banks must have a board of directors. The board is responsible for the overall supervision of the bank. The board must have at least five members, and a majority of the members must be independent (not employed by or otherwise affiliated with the bank).
Chief Executive Officer
All banks must have a CEO. The CEO is responsible for the day-to-day operation of the bank. They must have experience in the banking industry and a proven track record of success.
Internal Control Systems
All banks must establish and maintain internal control systems. These systems are designed to ensure the accuracy and completeness of financial reporting, compliance with laws and regulations, and the protection of bank assets.
Risk Management Policies and Procedures
Banks must have policies and procedures in place for managing risk. These policies and procedures must be approved by the board of directors and reviewed regularly.
Compliance with Banking Laws and Regulations
Banks must comply with all applicable banking laws and regulations. These laws and regulations include the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations.
Compliance Officer
All banks must have a compliance officer. The compliance officer ensures that the bank complies with all applicable laws and regulations.
Customer Confidentiality
Banks must protect the confidential information of their customers. This information includes, but is not limited to, customer names, addresses, account numbers, and Social Security numbers. Banks must take measures to safeguard this information from unauthorized access and disclosure.
The Gramm-Leach-Bliley Act (GLBA) requires banks to develop and implement a written information security program. This program must include measures to protect the confidentiality of customer information, ensure the security of customer information, and prevent unauthorized access to customer information.
Digital Consumer Data Protection
In addition, banks must take measures to protect the digital consumer data they collect and store. This data includes, but is not limited to, bank account numbers, credit card numbers, and Social Security numbers. Banks must take measures to safeguard this data from unauthorized access and disclosure.
The Bank Secrecy Act (BSA) requires banks to develop and implement a written information security program. This program must include measures to protect customer information confidentiality, ensure customer information security, and prevent unauthorized access to customer information.
Plus, the Gramm-Leach-Bliley Act (GLBA) requires banks to develop and implement a written information security program. This program must include measures to protect customer information confidentiality, ensure customer information security, and prevent unauthorized access to customer information.
Where to Find More Resources on Banking Regulations
The FDIC has a website dedicated to banking regulation. This website provides resources on bank requirements, bank examinations, bank compliance, and bank consumer protection.
Additional organizations to monitor include:
- The Consumer Financial Protection Bureau (CFPB) is responsible for enforcing consumer financial laws. These laws include the Truth in Lending Act (TILA), the Equal Credit Opportunity Act (ECOA), and the Gramm-Leach-Bliley Act (GLBA).
- The Office of the Comptroller of the Currency (OCC) is responsible for regulating national banks. The OCC has a website dedicated to bank compliance that provides resources on bank requirements, bank examinations, bank compliance, and bank consumer protection.
- The Federal Reserve Board supervises state-chartered banks that are members of the Federal Reserve System. The Federal Reserve Board has a website dedicated to bank regulation that provides resources on bank requirements, bank examinations, bank compliance, and bank consumer protection.
- The National Credit Union Administration (NCUA) is responsible for regulating federal credit unions. The NCUA has a website dedicated to credit union compliance that provides resources on credit union requirements, examinations, compliance, and consumer protection.
Conclusion
These are just some key regulations and requirements for starting a bank in the United States. For more detailed information, entrepreneurs should consult with the FDIC or other banking regulators.