INFORMATION NOTE - 香港特別行政區立法會

Legislative Council Secretariat

IN10/00-01

INFORMATION NOTE

Financial System of the United Sates of America

1. Background

1.1

The Panel on Financial Affairs and Bills Committee on Securities and

Futures Bill and Banking (Amendment) Bill 2000 of the Legislative Council (LegCo)

scheduled to conduct an overseas duty visit to New York and London to study the

regulatory regimes and market operations of these two leading international financial

centres, as well as to establish direct links with regulatory bodies and market players

in these places in early April 2001. To facilitate their visit, the Research and Library

Services Division of the LegCo prepared two separate information notes providing

basic information on the regulatory regimes and reform of the financial services

industry of these two countries.

1.2

The financial system of the United States of America (US) constitutes

the banking system1, nonbank financial institutions2 and financial markets3. This

paper provides background information on the banking system and financial markets

of the US. We have not covered nonbank financial institutions due to resource

constraints.

2. Overview of the Population and Economic Situation of the US

2.1

In 1999, the US had a total population of 272.7 million4 and Gross

Domestic Product (GDP) was US$8,808.7 billion5 (HK$68,708 billion)6. Per capita

GDP was US$32,302 (HK$251,956). In 1996, finance industry accounted for 5.1%

of GDP.7

1 Banking system comprises the Federal Reserve System, commercial banks, foreign banks, offshore

banks, saving institutions and credit unions. 2 Nonbank financial institutions comprises asset-based finance companies, insurance companies and

commercial lending companies. 3 Financial markets comprises equities markets, debt and money markets and futures and options

markets. 4 Population Reference Bureau, 2000 United States Population Data Sheet, Section 1;

5 6 As at December 2000, US$1=HK$7.798. Information extracted from Hong Kong Monthly

Digest of Statistics, January 2001, Census and Statistics Department, Table 7.12, p125 7

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3. Legislative Framework of the US Financial Services Industry

3.1

The US Congress introduces legislation relating to financial services,

and regulators at federal and state levels issue rules and regulations governing the

practices of the industry.

3.2

Committees at Congress handling financial affairs are the Committee

on Banking, Housing and Urban Affairs of the Senate and the Committee on Financial

Services of the House of Representatives.

Committee on Banking, Housing and Urban Affairs of the Senate

3.3

Committee on Banking, Housing and Urban Affairs handles all

proposed legislation, messages, petitions, memorials and other matters relating to the

following subjects:

(a) "banks, banking and financial institutions; (b) control of prices of commodities, rents and services; (c) deposit insurance; (d) economic stabilization and defense production; (e) export and foreign trade promotion; (f) export controls; (g) federal monetary policy, including the Federal Reserve System; (h) financial aid to commerce and industry; (i) issuance and redemption of notes; (j) money and credit, including currency and coinage; (k) nursing home construction; (l) public and private housing (including veterans housing); (m) renegotiation of Government contracts; and (n) urban development and urban mass transit."8

3.4

This Committee also studies and reviews on a comprehensive basis,

matters relating to international economic policy as it affects the US monetary affairs,

credit, financial institutions, economic growth and urban affairs.

8 Information extracted from Research and Library Services Division

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Committee on Financial Services of the House of Representatives

3.5

Committee on Financial Services of the House of Representatives

handles bills, resolutions and other matters relating to the following financial services:

(a) "banks and banking, including deposit insurance and Federal monetary policy;

(b) economic stabilization, defense production, renegotiation, control of the price of commodities, rents and services;

(c) financial aid to commerce and industry (other than transportation);

(d) insurance generally;

(e) international finance;

(f) international financial and monetary organization;

(g) money and credit, including currency and the issuance of notes and redemption thereof; gold and silver, including the coinage thereof; valuation and revaluation of the dollar;

(h) public and private housing;

(i) securities and exchanges; and (j) urban development."9

4. The Banking System

4.1

The US banking system comprises the Federal Reserve System,

commercial banks, savings institutions and credit unions. The whole system is

regulated at both federal and state levels. Table 1 shows the regulators and insurance

agencies for the US banking system.

Table 1 - Regulators and Insurance Agencies for the US Banking System

Banking Institution

Federal Regulator Banking Insurance Agency

Federal-chartered banks Office of the Comptroller of Federal Deposit Insurance

the Currency

Corporation

State-chartered banks

Federal Deposit Insurance Federal Deposit Insurance

Corporation

Corporation

Savings institutions

Office of Thrift Supervision Federal Deposit Insurance Corporation

Credit unions

National Credit Union (a) National Credit Union

Administration

Administration

(b) State or Private Agencies

9 Information extracted from Research and Library Services Division

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The Federal Reserve System

4.2

The Federal Reserve System (Fed) is the central bank of the US. It

constitutes a Board of Governors and 12 regional Reserve Banks. The Board of

Governors is made up of seven members appointed by the US President and

confirmed by the Senate. Only one member of the Board is selected from any one of

the 12 regional Reserve Banks. The full term of a Board member is 14 years.

4.3

Listed below are the functions of the Federal Reserve Board:

(a) conducting the nation's monetary policy;

(b) supervising and regulating banking institutions and protecting the credit rights of consumers;

(c) maintaining the stability of the financial system; and

(d) providing certain financial services to the US government, the public, financial institutions and foreign official institutions.

4.4

The duties of the 12 regional Reserve Banks include:

(a) operating a nationwide payments system; (b) distributing the nation's currency and coin; (c) supervising and regulating member banks and bank holding

companies; (d) serving as banker for the US Treasury; and (e) acting as depository for the banks in its own District.

Commercial Banks

4.5

In 1998, there were 8 774 commercial banks with total assets and

deposits amounted to US$5,440.9 billion (HK$42,428 billion) and US$3,681.5

(HK$28,708) billion respectively.10 These banks channel the majority of financial

transactions and services in the US. They are either federally or state chartered.

Federally-chartered banks (i.e. national banks) are regulated by the Office of the

Comptroller of the Currency (OCC) and must be members of the Federal Reserve

System and the Federal Deposit Insurance Corporation (FDIC). Bank holding

companies, foreign banks and offshore banks are regulated by the Federal Reserve.

State-chartered banks are regulated by the FDIC and banking authorities in the

specific state in which they are incorporated.

10 US Census Bureau, Statistical Abstract of the US:1999, Table No. 815, Insured Commercial Banks, by State and Other Area: 1998;

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Office of the Comptroller of the Currency

4.6

The Office of the Comptroller of the Currency (OCC) is a bureau of

the Treasury Department. The Comptroller of the Currency is appointed by the US

President and confirmed by the Senate for a term of five years. The principal

function of the OCC is to regulate the national banking system and agencies of

foreign banks.

4.7

In regulating national banks, the OCC has the power to:

(a) examine banks;

(b) approve or deny applications for new charters, branches, capital, or other changes in corporate or banking structure;

(c) take supervisory actions against banks that do not comply with laws and regulations or that otherwise engage in unsound banking practices. The agency can remove officers and directors, negotiate agreements to change banking practices and issue cease and desist orders as well as civil money penalties; and

(d) issue rules and regulations governing bank investments, lending and other practices.

4.8

The OCC does not receive any appropriations from the Congress.

Instead, its operations are funded by assessments on national banks. National banks

pay OCC for their examinations and corporate applications. The OCC also receives

revenue from its investment income.

Federal Deposit Insurance Corporation

4.9

The Federal Deposit Insurance Corporation (FDIC) is a federal

government agency that provides insurance protection for depositors at most

commercial banks and mutual savings banks. It is managed by a five-member board

of directors appointed by the US President and confirmed by the Senate.

4.10

The responsibilities of the FDIC are as follows:

(a) insures deposits up to US$100,000 (HK$779,800) in all the US banks and savings institutions;

(b) arranges a resolution for each failing institution11;

11 A resolution is a solution to the bank which is the least-costly to the insurance fund and the least disruptive for customers in the event of insolvency.

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