How the FDIC, SEC and OCC Protect the US Financial System

Within the past couple of years, as increasing numbers of banks have been failing, consumers are more concerned than at any time before in the history of this country, barring the Great Depression of the 1920’s and 30’s. Because so much time has elapsed since that point in our country’s history, many people only have a vague idea as to what the FDIC (Federal Deposit Insurance Corporation) is and how it was set up to promote the public’s confidence in the financial system of the United States. But the FDIC isn’t the only agency within the government to protect the finances of the general public. There are also the SEC and OCC that are set up to protect your financial security.

Failing Banks Create a Need for Government Intervention

While it is part of our national history, many people don’t realize just how drastic the situation was back in the 1920’s and early 1930’s. So many banks went under that people started to panic. As a result, depositors began pulling their money out of banks in order to protect their finances, but what they ended up doing was they made a bad situation even worse. More banks failed which led to further panic.

The federal government stepped in and set up an independent federal agency to reassure the public that their money was safe in banks and it would be insured so that, in the event that a bank failed, the federal government would guarantee depositors up to $2,500 of their money on deposit. Every 15 years or so thereafter the amount increased until 1980 where the ceiling was $100k where it stayed until 2008 when the amount was increased to $250,000. Gradually the public began to deposit their money once again and the fear was appeased until recent years.

The SEC Protects our Investments

However, above and beyond what consumers deposit in banks, there are great numbers of people who ‘play the market’ by buying and selling securities. Here, too, the United States government stepped in to protect investors while maintaining “fair, orderly and efficient markets.” Again, consumer confidence needed to be restored after so many banks went under and companies failed during that fateful Depression the 20’s and 30’s. To build the public’s trust back up in securities exchange, the stock market, the federal government set up the SEC, the Securities and Exchange Commission.

The most important thing to understand about the SEC is that it was established to protect the investments of consumers. It is their duty to oversee laws that Congress instituted during 1933 and 1934 (and all successive legislation) that was passed to keep confidence up in the United States economy. Just the same as when banks fail, should a great number of businesses fail, it could lead to another Great Depression. Knowing that there is an overseeing body gives investors added financial security.

Regulation of National Banks

Another entity of the federal government that helps to promote the public’s confidence in national banks is the Office of the Comptroller of Currency, the OCC. This arm of the federal government is set up to regulate banking practices of all national banks and also supervises all “federal branches and agencies of foreign banks.” They have punitive authority, which means they can order “cease and desist” as needed and impose both legal and civil fines. One thing that is interesting is that this agency is not subsidized by the federal government but through assessments on national banks.

Specifically the duties of the OCC include insuring the soundness and safety of the national banking system, fostering competition by allowing banks to offer new services and products, to continually improve the efficiency of their regulatory agency and to “ensure fair and equal access to financial services to all Americans.” In a nutshell, they both regulate national banks as well as their own agency to protect the financial security of the public – kind of like a watchdog within a watchdog.

As we have seen with the 2008 - 2009 meltdown of the major mortgage lenders, Fannie Mae and Freddie Mac, it doesn’t take much to set off a widespread panic. In order to protect our financial security, the federal government has several agencies in place to ensure the public that their money can be safely deposited and/or invested in the United States. While nothing is 100% foolproof, legislation is in effect to make every effort to help you guard and/or grow your finances.