This report provides an analysis of financial regulatory policy. The agencies listed in the "other" category regulate housing government-sponsored enterprises (GSEs) and consumer financial products, respectively. The appendices topics include organizational differences among financial firms, the rating system that regulators use to evaluate the health of banks, the regulatory structure prior to the Dodd-Frank Act, a list of common acronyms, and a glossary of common financial terms. The business model of banks also creates a number of economic policy problems. Banks that cannot borrow from other banks during emergencies can be provided a lender of last resort. One type of government backstop is a financial guarantee, such as deposit insurance. For example, a lender could borrow money through securities markets rather than from traditional retail depositors. Some agencies have powers over particular firms, but not over all of the other participants in the market that the firm might participate in. Government-sponsored enterprises (GSEs) also have a primary prudential regulator. The SEC and CFTC generally do not regulate the prices of stocks or futures traded on the exchanges; rather, they regulate the organization and membership of the exchanges, rules for trading, and attempt to prevent fraud, conflicts of interest, or manipulation by market participants. Some financial activities are subject to federal regulation no matter which institutions engage in them and no matter who hosts the trades in them. The Dodd-Frank Act created the Financial Stability Oversight Council (FSOC) to assume a coordinating role among the heads of financial regulatory agencies; the FSOC has a permanent staff to monitor financial-sector risks as a whole. The Dodd-Frank Act gathered much of this authority and personnel into a new Consumer Financial Protection Bureau (CFPB), but bank regulators still supervise many consumer activities of their chartered firms. In addition, because virtually all depository institutions are covered by federal deposit insurance, they are subject to at least one federal primary regulator (i.e., the federal authority responsible for examining the institution for safety and soundness and ensuring its compliance with federal banking laws). The Federal Reserve

The Federal Reserve System was established in 1913 to provide stability to banks and trusts through the regulation of reserves (P.L. As a result, much of the regulation of securities and derivatives markets has focused on resolving conflicts of interest and requiring full disclosure of material information, unlike bank regulation that tends to focus on prudence. Two types of firms come under the SEC's jurisdiction: (1) all corporations that sell securities to the public and (2) securities broker/dealers and other securities markets intermediaries. The SEC lacked safety and soundness powers over the institutions it supervised, and the Fed was forced to commit funds to an investment bank over which it had no regulatory jurisdiction. The FSOC's duties include
collecting information on financial firms from regulators and through the Office of Financial Research; monitoring the financial system to identify potential systemic risks; proposing regulatory changes to Congress to promote stability, competitiveness, and efficiency; facilitating information sharing and coordination among financial regulators; making regulatory recommendations to financial regulators, including "new or heightened standards and safeguards"; identifying gaps in regulation that could pose systemic risk; reviewing and commenting on new or existing accounting standards issued by any standard-setting body; and providing a forum for the resolution of jurisdictional disputes among council members. Non-Bank Capital Requirements

			Federal Housing Finance Agency

The Federal Housing Finance Agency (FHFA) is authorized to set capital classification standards for the Federal Home Loan Banks, Fannie Mae, and Freddie Mac that reflect the differences in operations between the banks and the latter two GSEs. Each NFA member that is required to be registered with the CFTC as a futures commission merchant (member FCM) must maintain "Adjusted Net Capital" (as defined in CFTC Regulation 1.17) equal to or in excess of the greatest of
(i) $500,000;
(ii) For Member FCMs with less than $2,000,000 in Adjusted Net Capital, $6,000 for each remote location operated;
(iii) For Member FCMs with less than $2,000,000 in Adjusted Net Capital, $3,000 for each associated person;
(iv) For securities brokers and dealers, the amount of net capital specified by SEC regulations;
(v) 8% of domestic and foreign domiciled customer and 4% of non-customer (excluding proprietary) risk maintenance margin/performance bond requirements for all domestic and foreign futures and options on futures contracts excluding the risk margin associated with naked long option positions;
(vi) For Member FCMs with an affiliate that engages in foreign exchange (FX) transactions and that is authorized to engage in those transactions solely by virtue of its affiliation with a registered FCM, $7,500,000; or
(vii) For Member FCMs that are counterparties to FX options, $5,000,000, except that FX Dealer Members must meet the higher requirement in Financial Requirements Section 11. Currency trading is largely conducted in the over-the-counter market. Treasury securities were exempted from SEC regulation by the original securities laws of the 1930s and under the Volcker Rule in the Dodd-Frank Act. Federal safety net —A broad term referring to protection of banking institutions through deposit insurance, discount window credit, other lender of last resort support, and certain forms of regulations to reduce risk.
Financial regulatory policies are of interest to Congress because firms, consumers, and governments fund many of their activities through banks and securities markets. Furthermore, financial instability can damage the broader economy. Financial regulation is intended to protect borrowers and investors that participate in financial markets and mitigate financial instability. This report provides an overview of the regulatory policies of the agencies that oversee banking and securities markets and explains which agencies are responsible for which institutions, activities, and markets. Some agencies regulate particular types of institutions for risky behavior or conflicts of interest, some agencies promulgate rules for certain financial transactions no matter what kind of institution engages in them, and other agencies enforce existing rules for some institutions, but not for others. These regulatory activities are not necessarily mutually exclusive.
Banking
U.S. banking regulation traditionally focuses on prudence. Banks' business decisions are regulated for safety and soundness and adequate capital. In addition, banks are given access to a lender of last resort, and some bank creditors are provided guarantees (deposit insurance). Regulating the risks that banks take is believed to help smooth the credit cycle. The credit cycle refers to periodic booms and busts in lending. Prudential safety and soundness regulation and capital requirements date back to the 1860s when bank credit formed the money supply. The Federal Reserve (Fed) as lender of last resort was created following the Panic of 1907. Deposit insurance was established in the 1930s to reduce the incentive of depositors to withdraw funds from banks during a financial panic.
Securities, Derivatives, and Similar Contract Markets
Federal securities regulation has traditionally focused on disclosure and mitigating conflicts of interest, fraud, and attempted market manipulation, rather than on prudence. Securities regulation is typically designed to ensure that market participants have access to enough information to make informed decisions, rather than to limit the riskiness of the business models of publicly traded firms. Firms that sell securities to the public must register with the Securities and Exchange Commission (SEC). SEC registration in no way implies that an investment is safe, only that material risks have been disclosed. The SEC also registers several classes of securities market participants and firms. It has enforcement powers for certain types of industry misstatements or omissions and for certain types of conflicts of interest. Derivatives trading is supervised by the Commodity Futures Trading Commission (CFTC), which oversees trading on the futures exchanges, which have self-regulatory responsibilities as well. The Wall Street Reform and Consumer Protection Act (Dodd-Frank Act, P.L. 111-203) required more disclosures in the over-the-counter (off-exchange) derivatives market than prior to the financial crisis and has granted the CFTC and SEC authority over large derivatives traders.
Government Sponsored Enterprises
The Federal Housing Finance Agency (FHFA) oversees a group of government-sponsored enterprises (GSEs). Two of the GSEs, Fannie Mae and Freddie Mac, securitize residential mortgages, and they were placed in conservatorship following mortgage losses in 2008. In the conservatorship, the Treasury provides financial support to the GSEs and FHFA and Treasury have managerial control over the enterprises. FHFA also regulates the Federal Home Loan Bank (FHLB) system, a GSE composed of regional banks to bankers owned by the 8,000 financial institutions that they serve.
Changes Following the 2008 Financial Crisis
The Dodd-Frank Act created the interagency Financial Stability Oversight Council (FSOC) and authorized a permanent staff to monitor systemic risk and consolidated bank regulation from five agencies to four. The DFA granted the Federal Reserve oversight authority and the Federal Deposit Insurance Corporation (FDIC) resolution authority over the largest financial firms. The Dodd-Frank Act consolidated consumer protection rulemaking, which had been dispersed among several federal agencies, in the new Consumer Financial Protection Bureau.
Special Topics
The appendices in this report include additional information on topics, such as the regulatory structure prior to the Dodd-Frank Act (DFA), organizational differences among financial firms, and the rating system that regulators use to evaluate the health of banks. A list of common acronyms and a glossary of common financial terms are also included as appendices.