Introduction to Financial Services: The Regulatory Framework
link to page 2 
Updated January 5, 2023
Introduction to Financial Services: The Regulatory Framework
This In Focus provides a brief introduction to the federal
various consumer protection laws for certain
agencies that regulate U.S. financial markets. For more
financial products.
detail, see CRS Report R44918, Who Regulates Whom? An
Overview of the U.S. Financial Regulatory Framework, by
These regulators regulate financial institutions, markets,
Marc Labonte.
and products using licensing, registration, rulemaking,
The Financial System
supervisory, enforcement, and resolution powers. Financial
regulation aims to achieve diverse goals, which vary from
Financial firms match the available funds of savers and
regulator to regulator: market efficiency and integrity,
investors with borrowers and others seeking to raise funds
consumer and investor protections, capital formation or
in exchange for future payments. The products, instruments,
access to credit, taxpayer protection, illicit activity
and markets used to facilitate this matching are numerous,
prevention, and financial stability. Different types of
and they are overseen by a complex system of regulators.
regulation—prudential (safety and soundness), disclosure,
The financial system is often divided into banking,
standard setting, competition, and price and rate
insurance, and securities markets. Securities are financial
regulations—are used to achieve these goals.
contracts that pledge to make payments from the issuer to
the holder and are generally traded on markets. Contracts
Other entities that play a role in financial regulation are
take the form of debt (a borrower and creditor relationship)
self-regulatory organizations, interagency bodies, state
and equity (an ownership relationship).
regulators, and international regulatory fora. Federal
regulators generally play a secondary role in insurance
Financial activity is inherently risky, but without risk-
markets, where state regulation predominates.
taking, businesses could not expand or innovate, and
households would only be able to purchase durable goods,
Regulatory Fragmentation
education, and housing that could be financed out of current
The financial regulatory system is fragmented, with
income. Financial regulation aims to balance the benefits of
multiple overlapping regulators and a dual state-federal
finance with the risks that it poses.
regulatory system. The system evolved piecemeal, as
The Financial Regulatory Framework
Congress responded to emerging issues, punctuated by
major changes in response to historical financial crises. The
Table 1 lists the federal financial regulators and whom they
2007-2009 financial crisis also led to changes to the
regulate. It categorizes those regulators as follows:
regulatory system. To address the fragmented nature of the
system, the Dodd-Frank Act created the Financial Stability
Depository regulators regulate institutions—
Oversight Council (FSOC), a council of regulators and
commercial banks, thrifts (savings associations),
experts chaired by the Treasury Secretary.
and credit unions—that accept customer deposits.
In practice, regulatory jurisdiction over institutions is
Securities markets regulators regulate securities
typically based on charter type, not function. This means
products, markets, and market participants. For
that a similar activity being conducted by two different
regulatory purposes, securities markets can be
types of firms can be regulated differently by different
divided into derivatives (whose value is based on
regulators. A financial firm may be subject to more than
an underlying commodity, financial indicator, or
one regulator because it may engage in multiple financial
financial instrument) and other types of securities.
activities. For example, a firm may be overseen by an
institution regulator and by an activity regulator when it
Government-sponsored enterprise (GSE)
engages in a regulated activity and by a market regulator
regulators were created by Congress as privately
when it participates in a regulated market.
owned institutions with limited missions and
Drawbacks to the fragmented regulatory system are the
charters to support the mortgage and agricultural
potential for jurisdictional gaps, which may cause
credit markets. It also created dedicated regulators
regulatory myopia, and overlaps, which may cause
exclusively to oversee the GSEs, some of which
redundant regulation. These gaps and overlaps could be
were consolidated by the Housing and Economic
exploited by financial firms to elude regulation or benefit
Recovery Act of 2008 (P.L. 110-289).
from a “race to the bottom” in regulatory standards between
competing regulators. Advantages to the fragmented system
A consumer protection regulator—namely, the
include more specialized and knowledgeable regulators. In
Consumer Financial Protection Bureau—was
addition, overlapping regulators could reduce the likelihood
created by the Dodd-Frank Wall Street Reform
of blind spots or groupthink in regulation.
and Consumer Protection Act (P.L. 111-203) in
2010 to consolidate and expand jurisdiction over
https://crsreports.congress.gov
Introduction to Financial Services: The Regulatory Framework
Table 1. Federal Financial Regulators and Whom They Regulate
Other Notable
Regulatory Agency
Institutions Regulated
Authority
Depository Regulators
Federal Reserve
Bank holding companies and certain subsidiaries (e.g., foreign
Operates discount window
subsidiaries), financial holding companies, securities holding companies,
(“lender of last resort”) for
and savings and loan holding companies
depositories; operates
Primary federal regulator of state banks that are members of the
certain payment systems;
Federal Reserve System, foreign banking organizations operating in the
conducts monetary policy
United States, Edge corporations, and any firm or payment or clearing
system designated as systemically significant by the FSOC
Office of the Comptrol er
National banks, U.S. federal branches of foreign banks, and federally
of the Currency (OCC)
chartered thrift institutions
Federal Deposit Insurance
Federally insured depository institutions
Operates deposit insurance
Corporation (FDIC)
Primary federal regulator of state banks that are not members of the
for banks; resolves failing
Federal Reserve System and state-chartered thrift institutions
banks
National Credit Union
Federally chartered or federally insured credit unions
Operates deposit insurance
Administration (NCUA)
for credit unions; resolves
failing credit unions
Securities Markets Regulators
Securities and Exchange
Securities exchanges, broker-dealers; clearing and settlement agencies;
Approves rulemakings by
Commission (SEC)
investment funds, including mutual funds; investment advisers, including self-regulated organizations
hedge funds with assets over $150 mil ion; and investment companies
Nationally recognized statistical rating organizations
Security-based swap (SBS) dealers, major SBS participants, and SBS
execution facilities
Corporations selling securities to the public
Commodity Futures
Futures exchanges, futures commission merchants, commodity pool
Approves rulemakings by
Trading Commission
operators, commodity trading advisors, derivatives, clearing
self-regulated organizations
(CFTC)
organizations, and designated contract markets
Swap dealers, major swap participants, swap execution facilities, and
swap data repositories
Government-Sponsored Enterprise Regulators
Federal Housing Finance
Fannie Mae, Freddie Mac, and Federal Home Loan Banks
Acting as conservator
Agency (FHFA)
(since Sept. 2008) for
Fannie and Freddie
Farm Credit
Farm Credit System, Farmer Mac
Administration (FCA)
Consumer Protection Regulator
Consumer Financial
Nonbank mortgage-related firms, private student lenders, payday
Protection Bureau (CFPB)
lenders, and larger “consumer financial entities” determined by the
CFPB
Statutory exemptions for certain markets
Rulemaking authority for consumer protection for all banks;
supervisory authority for banks with over $10 bil ion in assets
Source: CRS Report R44918, Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework, by Marc Labonte.
Marc Labonte, Specialist in Macroeconomic Policy
IF11065
https://crsreports.congress.gov
Introduction to Financial Services: The Regulatory Framework
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 | IF11065 · VERSION 7 · UPDATED
Updated January 5, 2023
Introduction to Financial Services: The Regulatory Framework
This In Focus provides a brief introduction to the federal
various consumer protection laws for certain
agencies that regulate U.S. financial markets. For more
financial products.
detail, see CRS Report R44918, Who Regulates Whom? An
Overview of the U.S. Financial Regulatory Framework, by
These regulators regulate financial institutions, markets,
Marc Labonte.
and products using licensing, registration, rulemaking,
The Financial System
supervisory, enforcement, and resolution powers. Financial
regulation aims to achieve diverse goals, which vary from
Financial firms match the available funds of savers and
regulator to regulator: market efficiency and integrity,
investors with borrowers and others seeking to raise funds
consumer and investor protections, capital formation or
in exchange for future payments. The products, instruments,
access to credit, taxpayer protection, illicit activity
and markets used to facilitate this matching are numerous,
prevention, and financial stability. Different types of
and they are overseen by a complex system of regulators.
regulation—prudential (safety and soundness), disclosure,
The financial system is often divided into banking,
standard setting, competition, and price and rate
insurance, and securities markets. Securities are financial
regulations—are used to achieve these goals.
contracts that pledge to make payments from the issuer to
the holder and are generally traded on markets. Contracts
Other entities that play a role in financial regulation are
take the form of debt (a borrower and creditor relationship)
self-regulatory organizations, interagency bodies, state
and equity (an ownership relationship).
regulators, and international regulatory fora. Federal
regulators generally play a secondary role in insurance
Financial activity is inherently risky, but without risk-
markets, where state regulation predominates.
taking, businesses could not expand or innovate, and
households would only be able to purchase durable goods,
Regulatory Fragmentation
education, and housing that could be financed out of current
The financial regulatory system is fragmented, with
income. Financial regulation aims to balance the benefits of
multiple overlapping regulators and a dual state-federal
finance with the risks that it poses.
regulatory system. The system evolved piecemeal, as
The Financial Regulatory Framework
Congress responded to emerging issues, punctuated by
major changes in response to historical financial crises. The
Table 1 lists the federal financial regulators and whom they
2007-2009 financial crisis also led to changes to the
regulate. It categorizes those regulators as follows:
regulatory system. To address the fragmented nature of the
system, the Dodd-Frank Act created the Financial Stability
Depository regulators regulate institutions—
Oversight Council (FSOC), a council of regulators and
commercial banks, thrifts (savings associations),
experts chaired by the Treasury Secretary.
and credit unions—that accept customer deposits.
In practice, regulatory jurisdiction over institutions is
Securities markets regulators regulate securities
typically based on charter type, not function. This means
products, markets, and market participants. For
that a similar activity being conducted by two different
regulatory purposes, securities markets can be
types of firms can be regulated differently by different
divided into derivatives (whose value is based on
regulators. A financial firm may be subject to more than
an underlying commodity, financial indicator, or
one regulator because it may engage in multiple financial
financial instrument) and other types of securities.
activities. For example, a firm may be overseen by an
institution regulator and by an activity regulator when it
Government-sponsored enterprise (GSE)
engages in a regulated activity and by a market regulator
regulators were created by Congress as privately
when it participates in a regulated market.
owned institutions with limited missions and
Drawbacks to the fragmented regulatory system are the
charters to support the mortgage and agricultural
potential for jurisdictional gaps, which may cause
credit markets. It also created dedicated regulators
regulatory myopia, and overlaps, which may cause
exclusively to oversee the GSEs, some of which
redundant regulation. These gaps and overlaps could be
were consolidated by the Housing and Economic
exploited by financial firms to elude regulation or benefit
Recovery Act of 2008 (P.L. 110-289).
from a “race to the bottom” in regulatory standards between
competing regulators. Advantages to the fragmented system
A consumer protection regulator—namely, the
include more specialized and knowledgeable regulators. In
Consumer Financial Protection Bureau—was
addition, overlapping regulators could reduce the likelihood
created by the Dodd-Frank Wall Street Reform
of blind spots or groupthink in regulation.
and Consumer Protection Act (P.L. 111-203) in
2010 to consolidate and expand jurisdiction over
https://crsreports.congress.gov
Introduction to Financial Services: The Regulatory Framework
Table 1. Federal Financial Regulators and Whom They Regulate
Other Notable
Regulatory Agency
Institutions Regulated
Authority
Depository Regulators
Federal Reserve
Bank holding companies and certain subsidiaries (e.g., foreign
Operates discount window
subsidiaries), financial holding companies, securities holding companies,
(“lender of last resort”) for
and savings and loan holding companies
depositories; operates
Primary federal regulator of state banks that are members of the
certain payment systems;
Federal Reserve System, foreign banking organizations operating in the
conducts monetary policy
United States, Edge corporations, and any firm or payment or clearing
system designated as systemically significant by the FSOC
Office of the Comptrol er
National banks, U.S. federal branches of foreign banks, and federally
of the Currency (OCC)
chartered thrift institutions
Federal Deposit Insurance
Federally insured depository institutions
Operates deposit insurance
Corporation (FDIC)
Primary federal regulator of state banks that are not members of the
for banks; resolves failing
Federal Reserve System and state-chartered thrift institutions
banks
National Credit Union
Federally chartered or federally insured credit unions
Operates deposit insurance
Administration (NCUA)
for credit unions; resolves
failing credit unions
Securities Markets Regulators
Securities and Exchange
Securities exchanges, broker-dealers; clearing and settlement agencies;
Approves rulemakings by
Commission (SEC)
investment funds, including mutual funds; investment advisers, including self-regulated organizations
hedge funds with assets over $150 mil ion; and investment companies
Nationally recognized statistical rating organizations
Security-based swap (SBS) dealers, major SBS participants, and SBS
execution facilities
Corporations selling securities to the public
Commodity Futures
Futures exchanges, futures commission merchants, commodity pool
Approves rulemakings by
Trading Commission
operators, commodity trading advisors, derivatives, clearing
self-regulated organizations
(CFTC)
organizations, and designated contract markets
Swap dealers, major swap participants, swap execution facilities, and
swap data repositories
Government-Sponsored Enterprise Regulators
Federal Housing Finance
Fannie Mae, Freddie Mac, and Federal Home Loan Banks
Acting as conservator
Agency (FHFA)
(since Sept. 2008) for
Fannie and Freddie
Farm Credit
Farm Credit System, Farmer Mac
Administration (FCA)
Consumer Protection Regulator
Consumer Financial
Nonbank mortgage-related firms, private student lenders, payday
Protection Bureau (CFPB)
lenders, and larger “consumer financial entities” determined by the
CFPB
Statutory exemptions for certain markets
Rulemaking authority for consumer protection for all banks;
supervisory authority for banks with over $10 bil ion in assets
Source: CRS Report R44918, Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework, by Marc Labonte.
Marc Labonte, Specialist in Macroeconomic Policy
IF11065
https://crsreports.congress.gov
Introduction to Financial Services: The Regulatory Framework
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 | IF11065 · VERSION 7 · UPDATED