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Government supervision and regulation of banking institutions

The Federal Reserve (Fed), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and Consumer Financial Protection Bureau (CFPB) are key regulators and insurers of the U.S. financial system, each playing a distinct role in overseeing financial institutions, insuring deposits, and protecting consumers’ rights. Created by Sal Khan.

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Video transcript

- So whenever you're dealing with banking, there's a whole series of government agencies and quasi, pseudo-government organizations, and I'll talk a little bit about why it's quasi-government, that influence what's happening with banks. And it's useful to know what they are, because sometimes they can help protect you or inform you on some of your decisions, or your financial decisions. So first and foremost, and almost every day, if you listen to the news, especially the Financial Press, you'll hear someone talk about the Federal Reserve. The Federal Reserve in the United States is the central bank. They are the folks that decide on how much money should be in circulation. And the way that that for the most part affects you is they set target interest rates, which essentially set short-term interest rates. Now, not directly what necessarily what you are going to get paid or someone's going to pay or what you're going to pay, but they're going to affect the interest rates for the banks themselves, which then have follow-on effects for consumers and for corporations and everyone else. So they have a lot of levers to affect the economy. They're essentially trying to make sure that the economy is in a good place without having too much inflation. And the reason why I said quasi-governmental institution is that the Federal Reserve is officially independent from the government, but the president does appoint the chairman of the Federal Reserve, and there is oversight between the two. So it's a quasi-governmental institution. Now, there is more. You have the Office, and I'm reading this to make sure I get this right, the Office of the Comptroller of the Currency. This is not a group that you'll hear a lot about if you think about the news, but they also, or they are part of overseeing the banking system as well. There's other things that the Federal Reserve does, like say, it tells banks what their minimum reserves are, how much they have to leave, what they can't lend it out, and things like that. And then you have the Office of the Comptroller of the Currency. That's why I have to write it down to make sure I'm reading this right. And they are making sure that the banks follow regulation. And this is actually a government agency that is part of the executive branch under the president of the United States. And they might penalize banks for doing things where they're not doing it right, where maybe it's making it hard to access their funds or something like that. Now, you also have the Consumer Financial Protection Bureau, which isn't just about banks, but they are also a group that is there to protect you. If, for example, you were to see that your bank is making weird charges on you that they didn't say, or they didn't disclose information, or they misrepresented what was going to happen and you're getting taken advantage of, you can file a complaint with the CFPB, the Consumer Financial Protection Bureau. And for example, in 2022, Wells Fargo was ordered to pay back $2 billion to consumers for what was deemed violations where they were charging them fees or had payment processing issues that were misapplied. So once again, they're out there to protect the consumer. Now, you also have the FDIC. This is a name that you will see. In fact, when you walk into a bank or when you look on their website, they will often say FDIC-insured. And this is very important. This isn't just some academic thing to worry about. It stands for Federal Deposit Insurance Corporation. And this really came out of, if you go back almost a hundred years, if you think about what started the Great Depression, part of this was what's called a run on bank. So people put deposits in their bank, and then for whatever reason, there's a bank scare. People are afraid that somehow the bank does not have their money there. So everyone rushes to that bank and says, give me my deposit. Well, that's a problem for a lot of banks, because most banks have taken a good chunk of those deposits, let's say, on the order of 90% of them, and they've lent it out to other people. So they don't necessarily have all the money there right now. And then the more that people don't get their money, people get afraid that the bank's going to go under, and the run on bank spreads. And in fact, it could spread to other banks 'cause more and more people get scared. So the government said, well, we should do something about this to prevent the financial system from having a panic like that. And so that's one of the key things that the Federal Deposit Insurance Corporation does. What they do is, for the banks that are FDI-insured, they will insure your deposits up to a certain amount. I won't go into all the details here, but it's on the order of about $250,000 depending on the situation. It could be per account or per person, per account. Look into the details of it. But that gives you confidence that, okay, if you have up to, say, $250,000 in that account, if anything were to happen to that bank, it were to go under, et cetera, et cetera, you are going to get your $250,000 back by the Federal Deposit Insurance Corporation. And if you're in a good situation where you have a lot of savings and you have more than that in different bank accounts, or more to deposit in a bank, then you do need to think about, all right, well, how do I make sure that this kind of stuff can get actually insured? Now, a similar notion to the FDIC but that applies to credit unions is the National Credit Union Administration, where they can play a similar function where they can help secure or insure and provide safeguards on that part of our financial system. Now, last but not least, there are other places where you can keep your money that aren't officially banks. There's a lot of online payment systems, things like Venmo, things like CashApp, PayPal, Zelle, and these can be very, very, very, very convenient. And in some cases they can even give you good interest. They are regulated, but they are regulated in different ways than, say, a traditional bank would be. So look into what the pros and cons are of that, and just be thoughtful of how you're using it. For example, many of them will not be FDIC-insured. So if you had $10,000 in one of them, and if it were to all of a sudden go under, double check what is going to happen in that situation. Oh, I always look down, 'cause I think, anyway, that's how I used to stop the videos. Now I just stop it this way.