Frequently Asked Questions about Banking and Finance
Q: Are all banks the same?
A: No. Some banks offer a wide variety of consumer products such as checking accounts, savings accounts and investment accounts, including individual retirement accounts (IRAs). Other banks, such as savings and loan banks, primarily handle mortgages and real estate transactions.
Q: How are banks regulated?
A: There are a number of federal agencies that regulate banks. The Office of the Comptroller of the Currency charters, regulates and supervises all national banks. The National Credit Union Administration regulates credit unions. In addition, the Federal Deposit Insurance Corporation (FDIC) maintains the stability of the US financial system by insuring deposits, examining and supervising banks and managing receiverships. The Board of Governors of the Federal Reserve System regulates and supervises commercial banks to ensure the safety and soundness of the nation's banking and financial system.
Q: What is the Federal Reserve?
A: The Federal Reserve System, also known as "the Fed," is the central bank of the US. According to its Web site, the Federal Reserve has the following responsibilities: to conduct the nation's monetary policy by influencing money and credit conditions in the economy; to supervise and regulate banks to make sure the nation's banking and financial systems are safe and secure and to protect the consumer's credit rights; to maintain the stability of the financial system and contain systemic risk in financial markets; and to provide certain financial services to the US government, the public and financial institutions.
Q: What happens if a bank fails?
A: That depends. Most banks have some sort of insurance that reimburses deposits up to a certain amount in the event of a failure. Most commercial lending institutions are insured through the Federal Deposit Insurance Corporation for up to $100,000 per deposit per insured bank.
Q: What types of transactions are included under electronic banking?
A: Electronic banking or electronic fund transfer (EFT) includes automatic teller machine (ATM) transactions, direct deposit, direct withdrawal to pay bills automatically, phone payments and transactions done at a personal computer. As the industry develops, customers will be able to accomplish more without actually entering a bank.
Q: Are the same protections that secure brick-and-mortar banks in place for electronic banking?
A: Yes. Most laws that protect consumers in traditional banking apply to electronic banking. However, the customer should be aware of privacy statements and information disclosure agreements that could affect the security of their personal information. There are also specific federal laws, including the Electronic Fund Transfer Act, that cover electronic banking.
Q: Do small businesses fall within the protections of the Equal Credit Opportunity Act (ECOA)?
A: Yes. Similar to the protections provided to individual consumers, the ECOA provides protections to small businesses. The ECOA prohibits lending institutions from considering race, gender, marital status, national origin or religion when making a credit decision. Also, a lender cannot take into consideration the predominant race of the neighborhood where the borrower wishes to locate his or her business.
Q: What is the difference between a credit union and a commercial bank?
A: There are a number of differences. Credit unions are chartered by the federal government and are non-profit institutions. Commercial banks are not necessarily chartered by the federal government and are for-profit financial institutions. Credit unions require membership, which is often contingent on a specific employer, occupation or residence, and often, credit unions have a limited number of branch locations. Alternatively, commercial banks do not have membership requirements and often have numerous branch locations and ATMs. Generally, commercial banks offer a broader range of financial services.
Q: What is Check 21?
A: Check 21 refers to the Check Clearing for the 21st Century Act, which is a federal law that allows for the use of electronic checks. Electronic checks are a substitute for paper checks that allow a bank to pay or receive money without actually sending a paper copy to another bank. Before technology permitted the transmission of an electronic likeness of a check, banks were forced to send the actual check, potentially delaying the transaction.
Q: I am starting a small business. Can I get a loan from the Small Business Association?
A: The Small Business Association (SBA) is a federal agency that assists small businesses in financing their ventures through several different loan programs. With a 7(a) loan, the SBA does not actually loan money; rather the business applies for a loan from a commercial bank. The bank then decides whether to do the loan internally or seek a guarantee for the loan from the SBA. The SBA guarantees that in the event of a default, the government will reimburse a portion of loss. To be eligible for a 7(a) loan from the SBA, the business must be a for-profit business, meet the SBA size standards, have no available internal financing or inadequate internal financing and have the ability to repay.
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