Basics

The Financial Services industry is subject to a web of regulations and laws across federal and state jurisdictions. The regulatory environment can thus be confusing, especially given the overlapping powers and jurisdictions that often define the industry. This Basic is the first in a new financial services series in which we will dive into reviews of the regulatory environment to demystify the laws and regulations of the Financial Services industry. This first Basic will discuss the major laws governing banking and payments in the United States.

The laws governing banking and payments in the United States are among the oldest financial regulations in the U.S.. At the country’s founding, most banking laws were enacted at the state level. However, during and after the Civil War, the federal government began to legislate the banking industry. Soon afterwards, U.S. payment regulations began to appear, most of which were implemented in the mid-twentieth century. After a century and a half, U.S. banking and payment legislation has created a robust set of regulations that have strengthened the U.S. financial services industry and supported the U.S. economy. Banking legislation focuses primarily on prudential regulations, and the agencies that oversee it primarily have supervisory roles. This means the laws focus on the solvency and stability of banking institutions, with supervisors ensuring the safety and soundness of the institutions they supervise. Payments legislation has trended toward fraud prevention and encouraging anti-discriminatory behavior. This does not mean that most major banking and payments legislation has not overlapped. Both, to some degree, encourage resilient financial institutions and discourage fraud and discrimination. However, as the U.S. continues to evolve and add more regulations, legislators need to carefully strike a balance between encouraging innovation and economic growth and ensuring a robust banking and payments infrastructure, a balance they have been considering since the first banking and payments laws were implemented in the mid-nineteenth century.