Banking Law

Banking law is the broad term for laws that govern how banks and other financial institutions conduct business. Banks must comply with a myriad of federal, state and even local regulations. Lawyers perform a wide variety of functions that relate to creating, following and enforcing regulations.

Multiple federal agencies oversee banking regulations. A bank or other financial institution might fall under regulations of the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve System or the Office of the Comptroller of the Currency (OCC). Banks must know what federal and state regulations they must comply with. Many federal banking regulations are found in chapter 12 of the U.S. Code.

Why do banking laws exist?

As the American economy expanded in the 20th century, lawmakers became concerned about the influence that banks have on the economy. When banks struggle, the effects spread to consumers and the public as a whole, they reason. Lawmakers create banking regulations in order to ensure that banks conduct regulations in a fair and transparent way. Banking regulations change frequently, and they remain controversial.

What do banking laws regulate?

Banking laws may exist in order to achieve many objectives. Some of these objectives include:

  • Provide transparency for consumers
  • Reduce risk for banking customers
  • Avoid misuse of banks for purposes like money laundering
  • Allow consumers to bank with confidentiality
  • Prevent other crimes
  • Prioritize bank lending according to economic and social priorities
  • Provide fair banking and equal opportunities for banking
  • Prevent terrorism
  • Create fair debt collection practices
  • Make credit card agreements fair to consumers
  • Prevent banks from making unfair loans to insiders like officers and principal shareholders
  • Allow customers to reasonably raise disputes
  • Other goals

Major banking laws

There are several major laws in the United States that regulate banking on a federal level. Federal banking regulations often supersede state and local regulations. In total, there are thousands of regulations, large and small, that banks need to understand and follow. Here are just a few of the major banking regulations in the United States:

Banking Act of 1933

The Banking Act of 1933 established the Federal Deposit Insurance Corporation. The FDIC system provides insurance for consumers in case banks fail. The maximum insurance amount has risen over time to its current limit of $250,000. The Banking Act includes other bank regulations.

Right to Privacy Act

Also called Regulation P, the Right to Privacy Act controls how banks can use customer information. Banks must tell consumers about their privacy policies and give them a chance to opt out of information sharing. Banks must also report suspicious customer activity to the government.

Dodd-Frank Act of 2010

This Act has 1,500 separate items. President Barack Obama signed the law that created new regulations for Wall Street. Banks have 400 new regulations to comply with because of the Act.

USA Patriot Act

Legislators passed the USA Patriot Act with the intent of preventing terrorism. Banks must know the customers that they lend to. The Act also requires banks to keep certain records that lawmakers say can help prevent acts of terrorism.

Bank Secrecy Act

The Bank Secrecy Act aims to stop money laundering and tax evasion. Bank must report cash transactions with a value of more than $10,000. They must keep records when they purchase certain financial assets.

Community Reinvestment Act of 1977

The Community Reinvestment Act requires banks to invest their money in the areas that they serve. They must find ways to serve low and moderate income individuals. They must also keep public files that allow for transparency on these matters.

Banking laws are controversial

As banks take up an increasingly large share of the U.S. economy, banking laws have come under increased scrutiny. The idea that large banks are too big to fail in the U.S. economy led to the Emergency Economic Stabilization Act of 2008 which is commonly known as the bailout of U.S. banks. The Act allowed the U.S. government to purchase risky financial transactions and even give money directly to banks. Supporters of regulations say that these measures may be onerous, but they’re necessary for the health and stability of the U.S. economy.

Opponents of the regulations disagree. They say that government regulations make banking more difficult and ultimately, more expensive. They say that allowing failing banks to fail rewards sound management practices.

Lobbying for banking regulations

Because of disagreements in opinion about proper banking regulations, one of the areas that attorneys can practice banking law is in the area of lobbying and government advocacy. Banks and other financial institutions rely on attorneys to evaluate proposed banking legislation and make their position known to legislators. They also advocate for changes to banking laws that they see as necessary.

Where do banking lawyers work?

Government employment

In addition to working as lobbyists on behalf of financial organizations, banking attorneys work for a variety of employers and in a number of specific specialties. They might work for the legislature in order to draft laws. In addition, the government agencies that oversee banks need attorneys to monitor compliance and bring enforcement actions against alleged violators.

Private sector

Banking attorneys also work in the private sector. Banking regulations are numerous and complex. All banks of even a modest size need a dedicated legal team in order to interpret, manage and fully comply with banking laws. Private attorneys may be employees of banks, or they may work for a law firm and contract with the bank to provide legal services. Most banks of any appreciable size hire in-house counsel to provide full-time legal services.

Private attorneys help banks by working to interpret and implement the laws. Banking regulations change frequently, and banks have to stay up to date on changes. Attorneys have to work with bank employees to develop regulatory systems and implement training for employees in order to help them comply with banking regulations.

Banks also need private attorneys in order to defend against allegations of wrongdoing. Although most banking work doesn’t involve formal litigation, attorneys that represent banks against allegations of wrongdoing may find themselves in formal court proceedings. These proceedings are often high-stakes.

Why practice banking law?

The challenge

American banking laws are not as nationally federalized as other developed countries. In many developed countries, all banking regulations are handled at a national level. In the United States, bank regulations and enforcement can come from national, state or even local authorities. That makes banking law a challenge for all banking attorneys regardless of their employer and whether they’re enforcing banking regulations or implementing compliance procedures.

A field for experts

Banking law is an area of practice that suits attorneys who have a large capacity to memorize and keep track of information. If you enjoy reading technical information, banking law is a practice that you might enjoy. With the sheer amount of banking law that exists in the United States, banking law is a field for people who can digest and analyze large amounts of information quickly.

Multiple personality types may enjoy banking law

Although banking lawyers certainly have the opportunity to litigate if they choose to, banking attorneys often work in compliance positions that don’t require frequent trips to formal court proceedings. That makes banking law a viable option for attorneys that may not necessarily enjoy a formal courtroom setting.

Geographic diversity

With banks of varying sizes throughout the United States, banking attorneys may live throughout the country. Because every bank needs compliance officers and because there are significant opportunities in both government and private sectors, the banking industry is a field for attorneys who may desire career changes. Opportunities for lateral and vertical career moves are plentiful in the profession.

Banking law is diverse and exciting

The practice of banking law is as diverse as it is vast. There are thousands of regulations, and banks must start with determining how regulations apply to them. Whether you want to create regulations, implement them or bring allegations of violations, there are a wide range of options available for individuals considering this area of practice. Banking attorneys can expect their area of practice to continue to evolve as banking regulations grow and change.