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Banking law regulates how banks operate, with most developed countries having a single regulator. In the US, banks are subject to both federal and state law, while banks in the EU are subject to both EU and national regulations. Objectives include protecting privacy, minimizing risk, and avoiding bank failure. Banks must hold certain cash deposits to prevent over-lending. Disclosure requirements vary by country, but often include lending rates and small business loans. Banks must protect consumers from discrimination and cooperate in criminal investigations.
Banking law determines how a bank should operate. Most developed countries, such as France, Germany and Great Britain, use a single regulator. In America, banks are subject to both federal and state law, which makes American banking a more complex affair. Banks within the European Union (EU) are also subject to EU regulations in addition to national ones. Regardless of the system, nations try to organize banks and establish how they operate.
Most countries share broad objectives in regulating banking law. These include protecting privacy, allocating credit, minimizing creditor risk and avoiding total bank failure. Different nations have different kinds of rules regarding these matters. Some prize stability above all else, while others prize privacy.
Governments require banks to hold certain levels of cash deposits to function. These prevent the bank from borrowing heavily or lending out more than it can handle. In theory, such protections in banking law protect consumers from failing their bank due to underinvestment. In theory, it also protects the government from bailing out those banks. Financial crises such as the 2008 global banking collapse demonstrate that safeguards need constant review.
How much information a bank is required to disclose depends on the national banking law. Banks are often required to disclose their lending rates and mortgage assets so consumers can decide whether a bank is serving the best interests of the local community. Community Investments include small business loan rates; also includes the total amount of small business loans a bank has made. Nations want their banks to support the operations of their small independent businesses.
Accountability and privacy are part of a bank’s duty to protect consumers. This also includes the protection of consumers who have taken out loans, mortgages and debit cards. It also regulates how a bank can collect debts such as credit card debts and foreclose on properties when buyers can’t keep up with their mortgage payments.
Banking law also protects potential consumers by requiring banks not to discriminate. This means that a bank cannot refuse to open an account based on someone’s age, race, gender and other factors. The only factor to consider is the prospect’s financial position at the time of application.
Government regulations and banking law require banks to cooperate in criminal investigations. Many tax havens have also signed up to EU regulations to stop money laundering and other criminal activities. When nations prize customer privacy above all else, it means that regulation of their activities is reduced, but it doesn’t mean that they support illegal activities.
