Commercial banks are governed by a variety of regulations intended to ensure that they serve their depositors and communities well and are operated in accordance with sound banking principles.

Several federal and state agencies, including the Federal Reserve, share the responsibility for writing these regulations and for examining banks to determine their compliance. The Federal Reserve supervises all bank and financial holding companies as well as state-chartered banks that are members of the Federal Reserve System. The Fed also regulates foreign activities of all U.S. banks and certain U.S. activities of foreign banks.

Bank and financial holding companies and certain banks that wish to acquire or merge with other banks must get prior Federal Reserve approval. Staff at a Reserve Bank analyze the banks and financial markets that will be affected by a proposed merger or acquisition, taking into account the convenience and needs of the community to be served and the financial and managerial resources of the existing and proposed institutions. The Board of Governors approves or disapproves merger and acquisition applications based on Reserve Banks’ findings and recommendations.

In addition, Reserve Banks monitor commercial banks’ compliance with consumer protection laws relating to credit, such as the Truth in Lending Act. Reserve Bank specialists help banks interpret technical requirements of the laws. They also provide information and assistance to consumers with questions or complaints regarding commercial banks’ services.

Discount Window Loans
Reserve Banks also help maintain a sound banking system by acting as the “lender of last resort” for depository institutions. Institutions that find themselves temporarily short of reserves because of unexpected credit demands, deposit drains, or seasonal economic factors may be eligible to borrow from a Reserve Bank. The availability of credit from the Federal Reserve is intended to stabilize individual depository institutions as well as the banking and financial system as a whole. Depository institutions are expected to seek funds first from reasonably available alternative sources and to rely on the Federal Reserve discount window only in exceptional circumstances.

Generally, discount window loans are made for a day or two to help the borrowers adjust their reserve position. Discount window credit is subject to governing statutes and is administered according to Federal Reserve policy guidelines by lending officers at the individual Reserve Banks.

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