RegulationMain article: Banking regulation See also: Basel II
Currently commercial banks are regulated in most jurisdictions by government entities and require a special bank license to operate.
Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order—although money lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the market, being either a publicly or privately governed central bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licenses banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank.
The law implies rights and obligations into this relationship as follows:
- The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank.
- The bank agrees to pay the customer's checks up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.
- The bank may not pay from the customer's account without a mandate from the customer, e.g. a check drawn by the customer.
- The bank agrees to promptly collect the checks deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account.
- The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship.
- The bank has a lien on checks deposited to the customer's account, to the extent that the customer is indebted to the bank.
- The bank must not disclose details of transactions through the customer's account—unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it.
- The bank must not close a customer's account without reasonable notice, since checks are outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship.
Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank license requirements, and therefore regulated under separate rules.
The requirements for the issue of a bank license vary between jurisdictions but typically include:
- Minimum capital
- Minimum capital ratio
- 'Fit and Proper' requirements for the bank's controllers, owners, directors, or senior officers
- Approval of the bank's business plan as being sufficiently prudent and plausible.
Read more about this topic: Bank
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Famous quotes containing the word regulation:
“Nothing can be more real, or concern us more, than our own sentiments of pleasure and uneasiness; and if these be favourable to virtue and unfavourable to vice, no more can be requisite to the regulation of our conduct and behavior.”
—David Hume (17111776)
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