State Regulators: Banking, Insurance & Securities

Instructor: Hafsa Reasoner

Hafsa holds an MBA and has taught various Business, Finance, Accounting and Economics college courses.

This lesson defines state regulator, describes their authority, and explains the roles of state bank regulators, state insurance regulators, and state securities regulators.

What Are State Regulators?

State regulators work for state agencies that oversee financial services providers to ensure they operate safely and soundly. These regulators serve the local and state credit markets.

State Bank Regulators

Bank examiners act on behalf of the state banking authority to conduct supervision on state banks and savings and loan associations. They ensure that the regional financial institutions operate legally and safely in accordance with the state bank regulations.

State bank regulators supervise over three-quarters of the nation's banks and license thousands of other non-bank financial institutions to operate in their state. Each state has a banking department that employs people like Larry to monitor the safety and soundness of the chartered institutions. Professionals like Larry ensure that the financial institutions operate within the law. State regulators also ensure that their community is protected from illegal and predatory financial practices and do everything to promote local economic growth.

Banking is a dual-regulatory system. This means that state and federal regulators collaborate best to supervise banks. Although state-chartered banks are primarily supervised by the state authorities, these financial institutions are also regulated by federal agencies. Take depository institutions for example, these commercial banks, savings institutions and credit unions must meet federal safety and soundness standards to qualify for deposit insurance by the Federal Deposit Insurance Corporation (FDIC). Furthermore, many state banks are members of the Federal Reserve System, which have supervisory authority over them. All banks must also meet the Federal Reserve's requirements.

However, state bank regulators conduct their supervision based on their local knowledge, authority and focus, with a determination on safety and soundness, consumer protection and local economic growth. Therefore, if you ever have any complaint about your state bank or financial institution, you might want to contact your state bank regulator and address it with them.

State Insurance Regulators

Unlike banks, insurance companies have been chartered and regulated by the state for over a century. Each state government has an entity or department with a responsibility of licensing and regulating companies and individuals selling insurance products. The states regulate the companies' solvency, the content of insurance products, and the market conduct of insurance companies. Each state sets its own laws and regulations for insurance, however the National Association of Insurance Commissioners (NAIC) coordinates national insurance standards through model laws and regulations. The NAIC models must first be enacted by the states, before they can have any legal effect. The states have also developed a coordinated system of guaranty funds designed to protect policyholders from their insurer's insolvency.

State Securities Regulators

In securities markets, the state securities acts have traditionally been limited to disclosure and qualification regarding securities distributions, and general antifraud provisions. However, the federal securities acts allow for simultaneous state regulation under Blue Sky laws intended to protect investors against fraud.

States also play a role in registration, whereby investment advisors who are limited from registering with the Securities and Exchange Commissions (SEC) are overseen by the state regulators. On the other hand, broker-dealers are subject to both state and federal regulation. States with large financial industry, such as New York, also enforce actions against financial institutions and market participants.

The scope of state regulation is determined by federal preemption laws, which apply federal statute to state-chartered institutions, and state 'wild card' laws, which allow state-chartered institutions to automatically receive powers granted to federal-chartered institutions. Therefore, firms, products and professionals that have registered with the SEC are not required to register at the state level.

Types of Regulation

There are many types of regulation applied to market participants. They vary by regulator, but can be categorized as follows:

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