Introduction to Financial Services: Banking
link to page 1 
Updated January 5, 2023
Introduction to Financial Services: Banking
Banks serve an important role in the financial system and
Overview of Regulation
broader economy. They aggregate the savings of
Two major components of bank regulation are prudential
households and businesses and lend to individuals,
and consumer compliance regulation.
businesses, and federal and local governments. Economic
output would be lower if, instead of banks, businesses had
Prudential. Prudential regulation (or “safety and
to finance investments themselves or individuals had to rely
soundness” regulation) is designed to promote bank
on their savings alone to make expenditures (e.g., home and
profitability and avoid bank failures, thereby protecting
car purchases). Banks also provide other important financial
taxpayers and the stability of the financial system. A bank’s
services, such as payment processing.
charter type and corporate structure determine its primary
federal prudential regulator (see Table 1). Banks are
This In Focus reviews key concepts in banking, provides an
chartered and regulated as national banks under the
overview of banking-related regulations and recent banking
authority of the Office of the Comptroller of the Currency
regulation, and highlights emerging policy issues.
(OCC) or as state banks under the authority of a state
regulator. The Federal Reserve (Fed) and the FDIC regulate
Key Concepts in Banking
state banks in conjunction with state bank regulators. Most
The term bank generally refers to a depository institution,
banks are owned by a parent company—called a bank
such as a commercial bank or thrift, that primarily accepts
holding company (BHC). Some BHCs have subsidiaries
deposits, makes loans, and processes payments. To accept
that engage in nonbank financial activities, such as
deposits, an institution must have a federal or state charter,
underwriting and dealing in certain types of securities. The
and deposits are generally insured by the federal
Fed is the primary regulator of BHCs.
government, subject to certain limits. Using customer
deposits and other funding, banks generally make loans and
Table 1. Primary Federal Depository Regulators
acquire certain other assets. (Credit unions are similar to
banks in these ways but are distinct from banks in their
Regulator
Oversees
ownership structure and regulation. This In Focus generally
Office of the Comptrol er
Nationally chartered banks and
covers banks but notes information related to credit unions
of the Currency (OCC)
national thrifts
where pertinent.)
Federal Reserve (Fed)
Bank holding companies and Fed
Balance Sheet. An understanding of a bank’s balance
member state banks and thrifts
sheet—its assets, liabilities, and capital (equity)—provides
Federal Deposit Insurance Non-Fed member state banks
the foundation for analyzing many banking issues. Loans
Corporation (FDIC)
and thrifts
made and securities owned by a bank typically comprise the
majority of assets on a bank’s balance sheet. To get the
National Credit Union
Federally chartered or insured
funding to make loans and acquire assets, banks use
Administration (NCUA)
credit unions
liabilities and capital. Customer deposits (e.g., checking and
Source: CRS.
savings account deposits) and any debt that a bank issues
(e.g., bonds, repurchase agreements) are liabilities of the
Capital and liquidity rules are important prudential
bank, as the bank owes these funds to its customers and
regulation tools. Holding a high level of capital can make a
creditors. The difference between the assets and liabilities
bank’s failure less likely because capital can be written
equals the bank’s equity (assets - liabilities = equity).
down to absorb losses. For this reason, banks are generally
Equity can be thought of as stockholders’ ownership stake.
required to maintain sufficient levels of capital to ensure
solvency and protect bank depositors and taxpayers. Banks
Deposit Insurance. The Federal Deposit Insurance
need liquidity to meet short-term obligations. Thus, banks
Corporation (FDIC) insures bank deposits up to a $250,000
are generally required to hold liquid assets or use stable
account limit. (The National Credit Union Administration
funding to ensure adequate liquidity.
insures credit union deposits—sometimes referred to as
“shares.”) By guaranteeing deposits, federal deposit
Consumer Compliance. Consumer compliance regulations
insurance is intended to prevent bank runs and promote
seek to ensure that banks conform to applicable consumer
financial stability to the financial markets. Although the
protection and fair-lending laws. The Consumer Financial
deposit insurance is funded by the industry, it is backed by
Protection Bureau (CFPB), created by the Dodd-Frank Wall
the full faith and credit of the United States (and thus,
Street Reform and Consumer Protection Act (P.L. 111-
ultimately by the taxpayers).
203), is primarily responsible for issuing the rules that all
banks must comply with. The CFPB is the primary
supervisor for consumer compliance at banks with more
than $10 billion in assets. Prudential regulators are the
https://crsreports.congress.gov
link to page 1
Introduction to Financial Services: Banking
primary supervisors for consumer compliance at banks with
Some observers argue that tailoring regulations does not go
$10 billion or less in total assets.
far enough to relieve regulatory burden on small banks.
Recent Banking Legislation
Figure 1. Asset Concentration by Bank Size
Congress passed Dodd-Frank in response to the 2007-2009
financial crisis. This major response was arguably the most
comprehensive financial reform legislation since the 1930s.
Debates have arisen over whether the benefits generated by
the changes implemented under the act (e.g., greater
financial stability and consumer protections) justify the
costs (e.g., compliance costs to banks and reduced credit
availability). To address concerns related to a perceived
regulatory burden imposed on banks by Dodd-Frank,
Congress passed the Economic Growth, Regulatory Relief,
and Consumer Protection Act (P.L. 115-174) in 2018,
which modified certain aspects of Dodd-Frank and bank
regulation.
Source: Created by CRS with information from FDIC’s Quarterly
Banking profile. Any differences are due to rounding.
Policy Issues
In the 117th Congress, some Members introduced the Bank
Congress continues to debate whether policy responses to
Merger Review Modernization Act of 2021 (H.R. 5419 and
the 2007-2009 financial crisis and subsequent reform
S. 2882), which would amend bank merger processes and
through P.L. 115-174 and regulation are appropriate. Other
requirements. Similar bills were introduced in the 116th
ongoing policy issues of interest to Congress are
Congress. Among its provisions, the legislation would
highlighted below.
authorize the CFPB to deny bank merger applications if the
new consolidated institution would not have adequate
Large Bank Regulation. Dodd-Frank required the Fed to
systems in place to ensure compliance with federal
apply enhanced prudential standards (EPS) to BHCs with
consumer laws. Other provisions would require the bank
assets of $50 billion or more. P.L. 115-174 raised that
regulators to perform a cost-benefit analysis and consider
threshold to $250 billion and granted the Fed discretion to
competitive effects on the market and Community
determine which EPS are applicable to BHCs with $100
Reinvestment Act (CRA) performance.
billion to $250 billion.
Congress passed CRA (P.L. 95-128) to address a lack of
Market Concentration and Community Banks. The term
lending in low-income neighborhoods. CRA requires
community bank generally refers to a small bank that
regulators to evaluate how well banks are meeting credit
services the needs of a local area. Small usually, but not
needs in the areas where they function and consider those
always, refers to the amount of assets a bank owns falling
evaluations when banks want to operate in new areas.
below a certain threshold, though different thresholds are
used in different contexts. (Some commonly used
Fintech. Financial technology, or “fintech,” usually refers
thresholds are $1 billion, $3 billion, and $10 billion.)
to technologies with the potential to alter the way certain
Congress has shown considerable interest in the status of
financial services are performed. Banks may enter into
community banks and credit unions (which typically share
contracts with fintech companies to reach new markets or
more characteristics with and compete with small banks
improve efficiency. Alternatively, banks may face potential
than with large banks). Bank consolidation has led to a high
competition from those companies, which may offer similar
concentration of bank assets in a small number of larger
products but may not be subject to the same regulations as
banks, as shown in Table 1. The number of banks has been
banks. Regulators are considering the extent to which
in decline for decades. As of September 2022, there were
certain fintech companies may be granted charters to
4,746 insured banks in the United States, down from a peak
operate as special purpose banks.
of 18,083 in 1986. The industry holds $23,632 billion in
assets, 86% of which is held by 158 of the largest banks,
CRS Resources
each of which had more than $10 billion in assets. (The top
CRS Report R47014, An Analysis of Bank Charters and
13 banks hold 56% of all assets.)
Selected Policy Issues
Several factors have contributed to bank consolidations in
CRS Report R46699, Banking Policy Issues in the 117th
the past 35 years. The significant deregulation of interstate
Congress
branch and banking restrictions in the 1980s and early
1990s played a role. Technological advances may have
CRS Report R45073, Economic Growth, Regulatory Relief,
increased economies of scale in banking. Some have argued
and Consumer Protection Act (P.L. 115-174) and Selected
small bank regulatory burden is another factor, as smaller
Policy Issues
banks might have fewer resources to dedicate to
compliance. Small banks are subject to fewer regulations
than large banks, and P.L. 115-174 included provisions
Raj Gnanarajah, Analyst in Financial Economics
providing targeted relief to banks below certain asset sizes.
Andrew P. Scott, Analyst in Financial Economics
https://crsreports.congress.gov
Introduction to Financial Services: Banking
IF10035
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF10035 · VERSION 10 · UPDATED
Updated January 5, 2023
Introduction to Financial Services: Banking
Banks serve an important role in the financial system and
Overview of Regulation
broader economy. They aggregate the savings of
Two major components of bank regulation are prudential
households and businesses and lend to individuals,
and consumer compliance regulation.
businesses, and federal and local governments. Economic
output would be lower if, instead of banks, businesses had
Prudential. Prudential regulation (or “safety and
to finance investments themselves or individuals had to rely
soundness” regulation) is designed to promote bank
on their savings alone to make expenditures (e.g., home and
profitability and avoid bank failures, thereby protecting
car purchases). Banks also provide other important financial
taxpayers and the stability of the financial system. A bank’s
services, such as payment processing.
charter type and corporate structure determine its primary
federal prudential regulator (see Table 1). Banks are
This In Focus reviews key concepts in banking, provides an
chartered and regulated as national banks under the
overview of banking-related regulations and recent banking
authority of the Office of the Comptroller of the Currency
regulation, and highlights emerging policy issues.
(OCC) or as state banks under the authority of a state
regulator. The Federal Reserve (Fed) and the FDIC regulate
Key Concepts in Banking
state banks in conjunction with state bank regulators. Most
The term bank generally refers to a depository institution,
banks are owned by a parent company—called a bank
such as a commercial bank or thrift, that primarily accepts
holding company (BHC). Some BHCs have subsidiaries
deposits, makes loans, and processes payments. To accept
that engage in nonbank financial activities, such as
deposits, an institution must have a federal or state charter,
underwriting and dealing in certain types of securities. The
and deposits are generally insured by the federal
Fed is the primary regulator of BHCs.
government, subject to certain limits. Using customer
deposits and other funding, banks generally make loans and
Table 1. Primary Federal Depository Regulators
acquire certain other assets. (Credit unions are similar to
banks in these ways but are distinct from banks in their
Regulator
Oversees
ownership structure and regulation. This In Focus generally
Office of the Comptrol er
Nationally chartered banks and
covers banks but notes information related to credit unions
of the Currency (OCC)
national thrifts
where pertinent.)
Federal Reserve (Fed)
Bank holding companies and Fed
Balance Sheet. An understanding of a bank’s balance
member state banks and thrifts
sheet—its assets, liabilities, and capital (equity)—provides
Federal Deposit Insurance Non-Fed member state banks
the foundation for analyzing many banking issues. Loans
Corporation (FDIC)
and thrifts
made and securities owned by a bank typically comprise the
majority of assets on a bank’s balance sheet. To get the
National Credit Union
Federally chartered or insured
funding to make loans and acquire assets, banks use
Administration (NCUA)
credit unions
liabilities and capital. Customer deposits (e.g., checking and
Source: CRS.
savings account deposits) and any debt that a bank issues
(e.g., bonds, repurchase agreements) are liabilities of the
Capital and liquidity rules are important prudential
bank, as the bank owes these funds to its customers and
regulation tools. Holding a high level of capital can make a
creditors. The difference between the assets and liabilities
bank’s failure less likely because capital can be written
equals the bank’s equity (assets - liabilities = equity).
down to absorb losses. For this reason, banks are generally
Equity can be thought of as stockholders’ ownership stake.
required to maintain sufficient levels of capital to ensure
solvency and protect bank depositors and taxpayers. Banks
Deposit Insurance. The Federal Deposit Insurance
need liquidity to meet short-term obligations. Thus, banks
Corporation (FDIC) insures bank deposits up to a $250,000
are generally required to hold liquid assets or use stable
account limit. (The National Credit Union Administration
funding to ensure adequate liquidity.
insures credit union deposits—sometimes referred to as
“shares.”) By guaranteeing deposits, federal deposit
Consumer Compliance. Consumer compliance regulations
insurance is intended to prevent bank runs and promote
seek to ensure that banks conform to applicable consumer
financial stability to the financial markets. Although the
protection and fair-lending laws. The Consumer Financial
deposit insurance is funded by the industry, it is backed by
Protection Bureau (CFPB), created by the Dodd-Frank Wall
the full faith and credit of the United States (and thus,
Street Reform and Consumer Protection Act (P.L. 111-
ultimately by the taxpayers).
203), is primarily responsible for issuing the rules that all
banks must comply with. The CFPB is the primary
supervisor for consumer compliance at banks with more
than $10 billion in assets. Prudential regulators are the
https://crsreports.congress.gov
link to page 1
Introduction to Financial Services: Banking
primary supervisors for consumer compliance at banks with
Some observers argue that tailoring regulations does not go
$10 billion or less in total assets.
far enough to relieve regulatory burden on small banks.
Recent Banking Legislation
Figure 1. Asset Concentration by Bank Size
Congress passed Dodd-Frank in response to the 2007-2009
financial crisis. This major response was arguably the most
comprehensive financial reform legislation since the 1930s.
Debates have arisen over whether the benefits generated by
the changes implemented under the act (e.g., greater
financial stability and consumer protections) justify the
costs (e.g., compliance costs to banks and reduced credit
availability). To address concerns related to a perceived
regulatory burden imposed on banks by Dodd-Frank,
Congress passed the Economic Growth, Regulatory Relief,
and Consumer Protection Act (P.L. 115-174) in 2018,
which modified certain aspects of Dodd-Frank and bank
regulation.
Source: Created by CRS with information from FDIC’s Quarterly
Banking profile. Any differences are due to rounding.
Policy Issues
In the 117th Congress, some Members introduced the Bank
Congress continues to debate whether policy responses to
Merger Review Modernization Act of 2021 (H.R. 5419 and
the 2007-2009 financial crisis and subsequent reform
S. 2882), which would amend bank merger processes and
through P.L. 115-174 and regulation are appropriate. Other
requirements. Similar bills were introduced in the 116th
ongoing policy issues of interest to Congress are
Congress. Among its provisions, the legislation would
highlighted below.
authorize the CFPB to deny bank merger applications if the
new consolidated institution would not have adequate
Large Bank Regulation. Dodd-Frank required the Fed to
systems in place to ensure compliance with federal
apply enhanced prudential standards (EPS) to BHCs with
consumer laws. Other provisions would require the bank
assets of $50 billion or more. P.L. 115-174 raised that
regulators to perform a cost-benefit analysis and consider
threshold to $250 billion and granted the Fed discretion to
competitive effects on the market and Community
determine which EPS are applicable to BHCs with $100
Reinvestment Act (CRA) performance.
billion to $250 billion.
Congress passed CRA (P.L. 95-128) to address a lack of
Market Concentration and Community Banks. The term
lending in low-income neighborhoods. CRA requires
community bank generally refers to a small bank that
regulators to evaluate how well banks are meeting credit
services the needs of a local area. Small usually, but not
needs in the areas where they function and consider those
always, refers to the amount of assets a bank owns falling
evaluations when banks want to operate in new areas.
below a certain threshold, though different thresholds are
used in different contexts. (Some commonly used
Fintech. Financial technology, or “fintech,” usually refers
thresholds are $1 billion, $3 billion, and $10 billion.)
to technologies with the potential to alter the way certain
Congress has shown considerable interest in the status of
financial services are performed. Banks may enter into
community banks and credit unions (which typically share
contracts with fintech companies to reach new markets or
more characteristics with and compete with small banks
improve efficiency. Alternatively, banks may face potential
than with large banks). Bank consolidation has led to a high
competition from those companies, which may offer similar
concentration of bank assets in a small number of larger
products but may not be subject to the same regulations as
banks, as shown in Table 1. The number of banks has been
banks. Regulators are considering the extent to which
in decline for decades. As of September 2022, there were
certain fintech companies may be granted charters to
4,746 insured banks in the United States, down from a peak
operate as special purpose banks.
of 18,083 in 1986. The industry holds $23,632 billion in
assets, 86% of which is held by 158 of the largest banks,
CRS Resources
each of which had more than $10 billion in assets. (The top
CRS Report R47014, An Analysis of Bank Charters and
13 banks hold 56% of all assets.)
Selected Policy Issues
Several factors have contributed to bank consolidations in
CRS Report R46699, Banking Policy Issues in the 117th
the past 35 years. The significant deregulation of interstate
Congress
branch and banking restrictions in the 1980s and early
1990s played a role. Technological advances may have
CRS Report R45073, Economic Growth, Regulatory Relief,
increased economies of scale in banking. Some have argued
and Consumer Protection Act (P.L. 115-174) and Selected
small bank regulatory burden is another factor, as smaller
Policy Issues
banks might have fewer resources to dedicate to
compliance. Small banks are subject to fewer regulations
than large banks, and P.L. 115-174 included provisions
Raj Gnanarajah, Analyst in Financial Economics
providing targeted relief to banks below certain asset sizes.
Andrew P. Scott, Analyst in Financial Economics
https://crsreports.congress.gov
Introduction to Financial Services: Banking
IF10035
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF10035 · VERSION 10 · UPDATED