Banking law determines how a bank must operate. Most developed countries, such as France, Germany and Britain, use a single regulator. In America, banks are subject to both federal and state law, making American banking a more complex affair. Banks within the European Union (EU) are also subject to EU regulations as well as national ones. Regardless of the system, nations seek to organize banks and to stipulate how they operate.
Most countries hold broad objectives in common with one another when regulating banking law. These include privacy protection, credit allocation, minimizing creditor risk and avoiding total bank failure. Different nations have different kinds of rules regarding these matters. Some prize stability above all things, while others prize privacy.
Governments require banks to hold certain levels of cash deposits in order to function. These prevent the bank from borrowing heavily or from lending out more than it can handle. In theory, such protections in banking law guard consumers from having their bank go bankrupt due to poor investment. It also theoretically protects the government from bailing out such banks. Financial crises such as the 2008 global banking collapse prove that safeguards are in constant need of revision.
The amount of information a bank is required to divulge depends on the nation’s banking law. Banks are often required to disclose their lending rates and mortgage activities so consumers can decide if a bank is serving the best interests of the local community. Community investment includes lending rates for small businesses; it also includes the total amount of small business loans a bank makes. Nations want their banks to support the operations of their small and independent businesses.
Accountability and privacy are parts of a bank’s duty towards consumer protection. This also includes protecting consumers who have taken out loans, mortgages and debit cards. It also regulates how a bank may collect debts such as credit card debts and foreclose properties when buyers fail to keep up with mortgage payments.
Banking law also protects potential consumers by requiring banks not to discriminate. This means that a bank cannot refuse to set up an account on the basis of someone’s age, race, gender and other factors. The only factor to be taken into account is the potential customer’s financial position at the time of application.
Government regulations and banking law require banks to cooperate with criminal investigations. Even many tax havens have signed up to EU regulations to stop money laundering and other criminal activities. When nations prize customer privacy above all other things, it means the regulation of their activities is lessened, but it does not mean they support illegal activities.