This In Focus provides a brief introduction to the federal agencies that regulate U.S. financial markets. For more detail, see CRS Report R44918, Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework.
Financial firms match the available funds of savers and investors with borrowers and others seeking to raise funds in exchange for future payments. The products, instruments, and markets used to facilitate this matching are numerous, and they are overseen by a complex system of regulators. The financial system is often divided into banking, insurance, and securities markets. Securities are financial contracts that pledge to make payments from the issuer to the holder and are generally traded on markets. Contracts take the form of debt (a borrower and creditor relationship) and equity (an ownership relationship).
Financial activity is inherently risky, but without risk-taking, businesses could not expand or innovate, and households would only be able to purchase durable goods, education, and housing that could be financed out of current income. Financial regulation aims to balance the benefits of finance with the risks that it poses.
Table 1 lists the federal financial regulators and whom they regulate. It categorizes those regulators as follows:
These regulators regulate financial institutions, markets, and products using licensing, registration, rulemaking, supervisory, enforcement, and resolution powers. Financial regulation aims to achieve diverse goals, which vary from regulator to regulator: market efficiency and integrity, consumer and investor protections, capital formation or access to credit, taxpayer protection, illicit activity prevention, and financial stability. Different types of regulation—prudential (safety and soundness), disclosure, standard setting, competition, and price and rate regulations—are used to achieve these goals.
Other entities that play a role in financial regulation are self-regulatory organizations, interagency bodies, state regulators, and international regulatory fora. Federal regulators generally play a secondary role in insurance markets, where state regulation predominates.
The financial regulatory system is fragmented, with multiple overlapping regulators and a dual state-federal regulatory system. The system evolved piecemeal, as Congress responded to emerging issues, punctuated by major changes in response to historical financial crises. The 2007-2009 financial crisis also led to changes to the regulatory system. To address the fragmented nature of the system, the Dodd-Frank Act created the Financial Stability Oversight Council (FSOC), a council of regulators and experts chaired by the Treasury Secretary.
In practice, regulatory jurisdiction over institutions is typically based on charter type, not function. This means that a similar activity being conducted by two different types of firms can be regulated differently by different regulators. A financial firm may be subject to more than one regulator because it may engage in multiple financial activities. For example, a firm may be overseen by an institution regulator and by an activity regulator when it engages in a regulated activity and by a market regulator when it participates in a regulated market.
To varying degrees, financial regulators have been made more independent from Congress and the President than typical government agencies are. Independence stems from statutory features, tradition, and agency culture. Statutory features that promote independence include whether the agency is subject to congressional appropriations and authorization, whether agency leadership has "for cause" removal protection and fixed terms that coincide with the President's, and exemption from various executive or congressional oversight requirements. Congress has recently debated whether to alter these features to make regulators more responsive to presidential or congressional priorities. For more information, see CRS Report R43391, Independence of Federal Financial Regulators: Structure, Funding, and Other Issues.
Regulatory Agency |
Institutions Regulated |
Other Notable Authority |
Depository Regulators |
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Federal Reserve |
Bank holding companies and certain subsidiaries (e.g., foreign subsidiaries), financial holding companies, securities holding companies, and savings and loan holding companies Primary federal regulator of state banks that are members of the Federal Reserve System, foreign banking organizations operating in the United States, Edge corporations, and any firm or payment or clearing system designated as systemically significant by the FSOC |
Operates discount window ("lender of last resort") for depositories; operates certain payment systems; conducts monetary policy |
Office of the Comptroller of the Currency (OCC) |
National banks, U.S. federal branches of foreign banks, and federally chartered thrift institutions |
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Federal Deposit Insurance Corporation (FDIC) |
Primary federal regulator of state banks that are not members of the Federal Reserve System and state-chartered thrift institutions; backup authority for other federally insured depository institutions |
Operates deposit insurance for banks; resolves failing banks |
National Credit Union Administration (NCUA) |
Federally chartered or federally insured credit unions |
Operates deposit insurance for credit unions; resolves failing credit unions |
Securities Markets Regulators |
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Securities and Exchange Commission (SEC) |
Securities exchanges, broker-dealers; clearing and settlement agencies; investment funds, including mutual funds; investment advisers, including hedge funds with assets over $150 million; and investment companies Nationally recognized statistical rating organizations Security-based swap (SBS) dealers, major SBS participants, and SBS execution facilities Securities sold to the public |
Approves rulemakings by self-regulated organizations |
Commodity Futures Trading Commission (CFTC) |
Futures exchanges, futures commission merchants, commodity pool operators, commodity trading advisors, derivatives, clearing organizations, and designated contract markets Swap dealers, major swap participants, swap execution facilities, and swap data repositories |
Approves rulemakings by self-regulated organizations |
Government-Sponsored Enterprise Regulators |
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Federal Housing Finance Agency (FHFA) |
Fannie Mae, Freddie Mac, and Federal Home Loan Banks |
Acting as conservator (since Sept. 2008) for Fannie and Freddie |
Farm Credit Administration (FCA) |
Farm Credit System, Farmer Mac |
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Consumer Protection Regulator |
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Consumer Financial Protection Bureau (CFPB) |
Nonbank mortgage-related firms, private student lenders, payday lenders, and larger "consumer financial entities" determined by the CFPB Consumer financial products Statutory exemptions for certain firms and markets Rulemaking authority for consumer protection for all banks; supervisory authority for banks with over $10 billion in assets |
Source: CRS Report R44918, Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework, by Marc Labonte.