Banking departments are state-level agencies in the US that regulate and oversee banks, credit lenders, and financial brokers. They ensure fair and transparent operations, issue licenses, inspect financial records, and perform audits. The FDIC is a national agency that certifies and insures banks, working closely with state banking departments. No insured bank has failed since its formation in 1933.
In most contexts, the term “banking department” refers to a state-level agency in the United States that oversees all banks, credit lenders, and major financial brokers doing business within that state’s borders. Each of the 50 US states has a banking department. The departments are in charge of regulating the activity of local banks and may also participate in fraud investigations and white collar crime inquiries when necessary. Some financial corporations, particularly those that count banks as customers, may also have an internal banking department or division. These types of banking departments are completely different from government regulatory authorities.
A banking department generally has jurisdiction and authority over any credit union, portfolio lender, commercial bank, merchant bank, community trust, or savings and loan operation that does business with state residents. The basic job of a state banking department is to make sure that banks operate in a fair, transparent and non-discriminatory manner. State legislatures pass banking laws, but it is the banking departments that enforce and oversee the application of those laws. The specific duties of what a banking department does vary from state to state, but most of the department’s work is carried out in issuing banking licenses, inspecting financial records and loan histories, and making of bank performance audits.
As state government agencies, banking departments are generally as concerned with regulation as they are with disclosure. On the one hand, a department regulates the banking industry to ensure that the industry follows all the rules. At the same time, however, the reason the department is doing any of this is to protect consumers and allow state residents to obtain loans, obtain mortgages and engage in private retail banking with confidence.
Most banking departments are limited to local law enforcement and supervision. States are often not in a position to insure banks or guarantee the fidelity of any investments held by local banks. In the United States, bank insurance is one facet of supervision at the national level.
The US Federal Deposit Insurance Corporation (FDIC) is a national government agency that certifies banks as creditworthy and investment-worthy, then insures individual investments up to a certain amount. If an insured bank failed, the FDIC would assume the value of all lost investments and pay any individual who lost money. The FDIC generally works closely with state banking departments to hold banking institutions accountable.
Congress formed the FDIC with the Emergency Banking Act of 1933, near the end of the Great Depression. Banks during that period were routinely failing, costing investors hundreds of thousands of dollars in lost investments. As of 2011, since the formation of the FDIC, no insured bank has failed. This is partly due to FDIC oversight, partly due to the oversight and compliance efforts of individual state bank departments, and partly due to congressional appropriations and bailout measures.
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