Definition of state banking department

What is a state banking department?

The term state banking department refers to a state-specific regulatory body that oversees the operations of financial institutions under its jurisdiction. The primary responsibility of a state banking department is to ensure that the financial system is accessible, stable, and secure for all consumers. The agency also regulates and licenses non-traditional financial companies, namely those that lend and conduct all kinds of financial activities in this state.

Key points to remember

  • A state banking service is a state-specific regulatory body that oversees the operations of financial institutions under its jurisdiction.
  • The agencies also regulate and license non-traditional financial companies, such as mortgage lenders, pawn shops, and payday lenders.
  • State banking departments evolved from the need for bank charter agencies when a strong federal banking system failed in the early days of the United States.
  • Many banks may fall under the jurisdiction of state and federal banking regulators.
  • Consumers can file complaints against financial institutions with the Consumer Financial Protection Bureau.

How government banking services work

A state banking department is an agency responsible for the charter and regulation of financial institutions operating within its jurisdiction. The department also performs routine reviews of these companies, including commercial banks, credit unions and trust companies. The agency also licenses and regulates other financial companies, such as insurance companies, mortgage lenders, pawn shops, money transmitters, and payday lenders.

Not all banks that operate in a particular state fall under its jurisdiction. State chartered banks and certain non-bank subsidiaries of federally chartered banks may or may not fall under the jurisdiction of that state’s banking regulator. Other federally chartered banks are under the jurisdiction of the Federal Reserve System (Fed) or the Federal Deposit Insurance Corporation (FDIC).

The state banking department is where many consumers go to file a complaint against a financial institution under the jurisdiction of the banking department. The Consumer Financial Protection Bureau (CFPB) maintains a database containing contact details for state banking services. The Office of the Comptroller of the Currency (OCC) also helps direct consumer complaints to the appropriate banking regulator, whether it is a state banking department or a federal agency.

Over 80% of the more than 5,000 banks in the United States are state chartered.

Special considerations

Many banks may fall under the jurisdiction of state and federal banking regulators. A state chartered bank that is a member of the Federal Reserve system is under the supervision of both that state’s banking department and the Fed.

State chartered banks that are not part of the Federal Reserve System fall under both the state’s banking department and the FDIC. In this way, most banks are regulated by both state and federal regulators.

Depending on a bank’s organizational structure and the type of charter it has, it may be subject to many redundant federal and state regulations. The combination of federal and state supervision of banks is known as the dual banking system.

History of state banking

State banking departments evolved from a need for bank charter agencies in the early days of the United States. At that time, there was no strong federal banking system. State banking services were the first entities allowed to create chartered banks, and they continue to create chartered banks today. The dual banking system began at the end of the 19th century after the passage of the National Bank Act of 1863. It formed the OCC and authorized the agency to establish national banks.

State Banking Departments Vs. Other Regulators

The state banking department is just one of the state’s many financial regulators. Other state financial regulators include state insurance regulators and securities regulators. State securities regulators play a particularly important role in regulating investment advisers.

Most financial advisers do not have to register with the Securities and Exchange Commission (SEC) and they are not regulated by the state banking department. If you have a question or complaint about a financial advisor, the North American Securities Administrators Association (NASAA) maintains a list of state securities regulators.


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