Banking Law is a legal field that deals with financial regulations so that all banks and financial institutions operate in a similar fashion on state and federal levels.
No matter how small or large a bank is, it is subject to federal banking laws.
This is why interest on a loan or similar ventures have percentage caps in order to protect investors and bank customers from usury or financial extortion, and why there are credit score minimums enacted in order for banking customers and business investors to qualify for a line of credit.
Banking Laws & Regulations
Within the United States, banks are subject to adhere to state and federal banking laws.
For example, a state chartered bank not only have to adhere to the banking laws of their respective states (a New York bank operating only within the borders of the state must follow New York banking regulations), but also Federal Banking Regulations as laid out by the Federal Deposit Insurance Corporation (FDIC) or the Federal Reserve Board.
The laws regarding banking regulations could easily fill a football stadium, which is why there are financial and banking attorneys who specialize in specific areas of banking law in order to help the average citizen, as well as large corporations, understand the many complex financial regulations.
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Banking Laws And Regulations in United States
Banking Laws & Privacy
As of 1999, A federal banking regulation known as The Right To Financial Privacy Act (or Regulation P), which states that bank customers (be they people or corporate entities) must be informed when their financial records might be disclosed to a third party.
This act is a form of banking regulation that protects a customer’s private data by requiring banks to offer customers a way to opt out of third party exchanges.
Keep in mind, however, that in the case of a Federal investigation, one cannot prevent the government from accessing the financial records held by a federally chartered bank.
According to the Bank Secrecy Act, banks must keep records of all cash transactions and cash withdrawals in excess of $10K.
The reason for this is to assist the Federal government in any investigations into money laundering or potential terrorism threats, which will also nullify a customer’s privacy if he or she is implicated in the investigation.
International Banking
The FDIC, as of 1978 and in accordance with the International Banking Act, requires federal banking laws to be observed in financial dealings with banks outside of the United States or its territories.
This means that banks are prohibited from discriminating against customers who have financial holdings in other countries.
For example, is someone with an account at the United Bank of Switzerland (UBS) wants to take a portion of the money in that account and open up a savings account at a branch of Bank of America in Manhattan, then Bank of America, which is a chartered bank registered with the FDIC, cannot refuse the transfer of funds.
On a much smaller scale, if a person has an account at UBS, and decides to write a check after going out to dinner, and the restaurant has an account with Bank of America, then Bank of America must honor that check and allow it to be deposited by the restaurant owners.
A Few Words About Offshore Holdings
Many people living in the United States, as well as businesses, often talk about putting their earnings into offshore holdings.
According to banking law, this is not illegal.
Most people look into offshore holdings as a way to keep money without having to pay federal taxes on that money in the United States.
However, despite what television and movies would have you believe, far fewer Americans use offshore holdings as alternative banking solutions when compared to other parts of the world.
Bottom Line
Banking laws – federal regulations, international banking, de-regulation proposals, right down to customer incentives like opening an account and getting a free credit card – all of these things are complex and span back as far as the founding of this country, with more and more financial regulations and banking laws being enacted every year.
If you have a question about banking law, or are in a situation where understanding banking law would work to your advantage in order to assess the financial options that are open to you, then you might want to seek the advice of a banking lawyer.
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It is very wise to consult an offshore law firm before embarking into the world of offshore finances. Find a firm in whatever jurisdiction you are planning on doing business in. The offshore law firm will be specialized in the laws of that jurisdiction in regards to offshore holdings.