The banking industry has experienced substantial changes for a long period of time. There have been many regulations and deregulations enacted by the federal government to banking industry, in order to protect customers from their deposits and the banks from liquidation.
The regulatory system in United States is referred to as a dual banking system where both federal and state government regulates the banking system. Bank regulation is needed to enhance the safety of the banking system and the public. The regulation of deposit insurance existed by the creation of FDIC in 1933. During the great depression period of 1930-1932, depositors withdrew money from their bank continuously. As more money was withdrawn the less money was deposited. Due to that reason banks did not had enough money to make withdrawals and they failed. FDIC came in effect where the federal government insured the money deposited. This was one of the regulations that provided trust to the public. Along with FDIC, regulations on capital requirements, regulation of loans, regulation of investment in securities, regulation of insurance service, regulation of off-balance sheet transaction, regulation of the accounting process followed to provide safer environment for the banking industry.
Along with different regulations adopted by federal government, Congress and other agencies focused on reducing bank regulations. The most known deregulation act was of 1980. In 1980, the depository Institutions Deregulation and Monetary Control Act (DIDMCA) deregulated the baking industry that led to increase in competition among banks. The deregulatory provision allowed banks to make their own decision on what interest rates to offer. They were also allowed to offer NOW accounts. They were also allowed more flexibility to engage in various types of lending. Along with DIDMCA, many deregulation act followed like Garn-St Germain Act, underwriting services, the financial services modernization act, deregulation of brokerage service and mutual funds.
With all these regulations and deregulations enacted by the Congress, there are still some concerns over banking industry. Especially with the downfall of Enron and many big organizations, Congress had to provide trust to public and provide a safer baking environment. In response to that Obama signed the Dodd-Frank Wall Street Reform Act into law in 2010.
Dodd- Frank Wall Street Reform Act was passed in an attempt to prevent the recurrence of events that caused the 2008 financial crisis. It is supposed to lower risk in various parts of the US financial system and make another economic crisis less likely. The Act was named after US Senator Christopher Dodd and US Representative Barney Frank. The new Consumer Financial Protection Bureau (CFPB) is tasked