81 percent of American adults were fully banked. They all have legitimate bank accounts. This is from the 2020 Federal Reserves report on the economic well-being of US households. 

Digital Bank users make up around 197 million people in the US population. This was the scene in March 2021. It will be 217 million by 2025. 

Part of the population using digital banking has grown from 61% to 65% in the past 5 years.

To tend to these 200 million people, Banking and Finance law is a very important part of US law. Banks provide a safe facility for keeping your hard-earned money. They have early interest rates and schemes through which your money increases in value over time.

You, a citizen of the United States, can be relieved because the Federal government well protects your money. Banking and Finance laws are the strength of America’s economy. They protect the banking and financial systems and ensure smooth working. 

The economy goes through ups and downs. Banking and Finance laws are designed to keep the system up and running in difficult times of economic depression or recession. 

In this article, we will tell you all about the Banking and Finance laws currently applicable in the US. We also elaborate on how you benefit from them.

How Did Banking And Finance Law Originate?

There are numerous banking and finance laws in the United States. These are brought into force by the Congress after getting a majority. Various regulatory bodies help in the execution of these laws. 

• Since there are so many banking and finance laws, there are legal issues, too. According to Statistics from 2022, the top 100 banking and finance law firms in the United States generate a total revenue of almost 131 billion U.S. dollars. 
• The evolution of Banking and Finance laws in the US is quite a journey. It involves a number of legislative and historical developments. The need to establish a stable financial system drove the lawmakers to come up with these laws.

These laws promote economic growth, protect consumers, and ensure security in all financial transactions. Let us now see where these laws come from.

In The Early 1700s

In the early days of American colonization, there was no centralized banking system. Citizens relied on private merchants who had their own rules. That was no single form of currency. This is when Banking and Finance laws started their earliest work. A standard form of currency was fixed to avoid confusion and disputes.

The Early 1800s

The Revolutionary War had just taken place. There was a growing need for a stable and unitary financial system. The Federal US government established the First Bank of the United States in 1791. This set up a central system for Banking and Finance.

More Banks In The US

There started to be a lot of debates questioning the constitutionality of the first bank. This led to the establishment of the Second Bank of the United States in 1816. Slowly, the role of a National Bank came into question.

1830 saw the absence of a central banking authority. Various States began to Charter their own banks and currencies. Absolute confusion, financial instability, and banking failures were common occurrences. 

Soon, new banking regulations were developed.

Stepping Stones To Current Banking And Finance Law

These banking and finance laws served as the precursors to the current laws we benefit from.

Banking Act of 1935 (Bank Holding Company Act)

The Banking Act of 1935 was also called the Bank Holding Company Act. It was established to counter the concentration of financial power within a select few banking corporations. These corporations were the holding companies that controlled multiple banks. This act regulated the workings of these holding companies. Consumer protection and fair competition was the main purpose of the law.

What Did The Act Do?

It restricted the functions of the bank holding companies. The government controlled the monopolistic tendencies by preventing their non-banking activities.

• Federal management would now regulate the functions and actions of bank holding companies.  These federal bodies would ensure financial stability.
• The act introduced antitrust provisions. From then onward, fair practice would take precedence over monopolistic measures.
• Therefore, it is safe to say that the Banking Act of 1935 promoted a healthier banking system.  

National Banking Act Of 1863

The National Banking Act came into force in 1863. It was supposed to put an end to the chaotic banking practices. It brought national banks onto the scene and established a uniform banking system throughout the US.

What Did The Act Do?

The act authorized the first-ever national banknotes. These notes were backed by the federal government. 

• The notes were a standardized form of national currency valid across state lines. 
• This marked an end to the confusion created by state-chartered banknotes.
• National banks would be federally regulated. They all had to follow uniform standards and practices. This helped the stability of the banking system.
• For the first time in history, banks had reserve requirements. 
• They could not be fully devoid of cash. A portion of their deposits would always be in reserve for people to withdraw money.

Therefore, the National Banking Act of 1863 came up with a consistent and regulated banking system. 

Federal Reserve Act of 1913

This Act was a landmark legislation. It created the Federal Reserve System. The system still serves as the central banking authority of the United States. Banking and finance law experts claim that this act revolutionized the nation’s monetary policy.

What Did This Act Do?

The act established the Federal Reserve System. 

• That is how it enforced a responsible body for governing the money supply, proper interest rates, and helping the masses during a financial crisis.
• The system even created 12 regional Federal Reserve Banks. 
• Each one operated within the districts of the state.  These banks governed market operations, reserve requirements, and discount rates.

A modern banking and finance system was set up.

Glass-Steagall Act of 1933

The Act was passed in the year 1933. After the Great Depression, the government wanted to solve all conflicts of interest. This Act called for the separation of commercial banking activities.

What Does This Act Do?

The mundane and common activities, such as taking deposits and making loans, would be treated differently from corporate forms of trading.

• Investment banking activities such as underwriting and trading securities would be set apart from common banking activities.
• This separation would protect the common man’s money from risky investment practices.
• The act even set up a Federal Deposit Insurance Corporation (FDIC) to provide insurance on bank deposits.

Securities Act of 1933 and Securities Exchange Act of 1934

These acts enabled transparency and regulation for securities. It was enacted after the stock market crash of 1929.

What Did The Securities Act of 1933 Do?

This act stated that all companies giving out securities will need a piece of detailed and accurate information to their investors. The Act would prevent consumers from being victims of fraudulent practices by investors.

What Did The Securities Exchange Act of 1934 Do?

This act brought the Securities and Exchange Commission (SEC) into force. The commission would set up rules for securities exchanges and enforce similar laws.

Together, these acts regulated the securities and exchange system. 

Now that we have gone through the main precursors to the banking and finance laws let us look at some of the current ones in the US. 

What Is The Current Banking And Finance Law In The USA?

Banking and finance regulations provide financial stability, consumer protection, and effective methods of crisis management. Let us look at some of these banking and finance laws of the US.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

The Dodd-Frank Act is a landmark piece of legislation. It takes care of the loopholes in the financial system. This Act was established after the devastating aftermath of the Global Financial Crisis (GFC) of 2008. The crisis was extremely damaging to the world economy. It originated in the United States and went on to greatly affect the global economy. 

What Does This Act Do?

The act has multiple provisions to ensure financial stability, consumer protection, and increased transparency in the banking system. 

• This Act established the regulatory body called the Consumer Financial Protection Bureau. 
• The bureau is an independent agency that controls financial products and services delivered to consumers. 
• It maintains a standard to protect consumers from unfair, deceptive, or abusive practices.
• The Act sets regulations for bodies under the financial system. It establishes standards, capital requirements, and stress testing measures to test their tenacities. 
• It is based on the Volcker Rule. The rule sets up restrictions regarding proprietary trading.  
• Investments, hedge funds, and private equity funds are all controlled through it. This is done to protect consumers from excessive risk-taking.

Therefore, this is how the Dodd-Frank Act makes it into the list of the most important banking and finance laws of the US. It takes special care related to clearing, reporting, and trading practices. 

Bank Secrecy Act (1970) and The USA PATRIOT Act (2001)

According to the statistics, a total of $227.8 million was laundered in the USA in 2020. A huge sum of $300 billion is laundered through the United States each year. As the name suggests, the Bank Secrecy Act prevents money laundering and other financial crimes. 

It establishes transparency in banking and financial transactions. The USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act) broadened the scope of the Bank Secrecy Act. It was brought into effect after the September 11, 2001 terrorist attacks. 

What Do These Acts Do? 

These pillars of US banking and finance law took the following steps.

• Establishment of the Anti-Money Laundering Programs

All financial institutions in the US would set up these programs to prevent money laundering. 

• After the September 11 attacks, the institutions also used these programs to prevent terrorist financing activities. 
• The programs include customer identification procedures, monitoring, and reporting practices. 
• Reporting Of Suspicious Activity

All financial institutions should report suspicious transactions to authorities through the power given by the Act. 

• This information will help regulatory agencies to identify and check criminal activities.
• Banks Will Show Customers Due Diligence

The USA PATRIOT Act requires all financial institutions to verify the identities of companies. This protects consumers from fraudulent behavior. 

Gramm-Leach-Bliley Act of 1999

The Gramm-Leach-Bliley Act (GLBA) removed restrictions established by the Glass-Steagall Act. This helped banks and other financial institutions take a modern and apt approach.

What Does This Act Do?

These are the beneficial provisions of this banking and finance law.

• It causes the establishment of Financial Privacy. GLBA made it mandatory for all financial institutions to inform consumers about their privacy. 
• Consumers get the option to choose what information to share and what not to. This protects their sensitive information from third parties.
• The act states that all financial institutions will give consumers the option to opt out from sharing information with affiliates.
• Apart from that, all financial institutions should legally implement safeguarding practices to protect customer information

Final Word: Importance Of Banking And Finance Law

On the face of it, the banking and finance laws of the United States may look complicated. However, each Act has its distinct role to play. Parts of International banking and finance law also serve these purposes.

Laws related to banking and finance are not limited to the ones I have discussed in the article. There are, in fact, so many that the article would never come to an end. 

• For instance, the Sarbanes-Oxley Act of 2002 has the role of protecting investors through corporate governance, measures of accountability, and transparency.  
• The Community Reinvestment Act of 1977 looks after the credit needs of low- to moderate-income parts of the population. 

Without banking laws, there would be absolute chaos. For starters, there would be no uniform currency in the US. 50 states would probably have 50 different types of currency. There would be no consumer protection, no regulatory body to protect you from money laundering, you get the idea. If you have further doubts, leave a comment below or contact a banking attorney of your choice. 

Thus, it is safe to say that banking and finance law is our way to a safe and stable economy.

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