banking

Banking involves receiving deposits that can be withdrawn on demand, issuing loans, and discounting commercial papers. It also includes making secured loans on collateral, buying and selling bills of exchange, negotiating loans, and trading negotiable securities issued by federal, state, or municipal governments, as well as by corporations. Banks and bank accounts are regulated under both state and federal law. Accounts may be established by national and state-chartered banks and savings associations, and each is regulated under the law of its charter.

Federal law formerly imposed strict limits on the payment of interest. Interest ceilings applied to savings accounts, interest was generally prohibited on checking and other demand deposit accounts, and money market accounts were not permitted. These restrictions were lifted by federal legislation, including the  The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), which eliminated interest-rate controls on savings accounts and authorized new types of checking accounts (NOW and Super NOW checking accounts), and the Garns-St Germain Depository Institutions Act of 1982, which removed restrictions on checking and money market accounts.

State law, supplemented by federal statutes, governs the operation of checking accounts. Article 4 of the Uniform Commercial Code (UCC), which has been adopted in some form by every state, defines the rights and responsibilities of depository banks, collecting banks, payor banks, and the treatment of documentary drafts. Federal Reserve regulations also govern check processing. Regulation J applies to checks cleared through the Federal Reserve System, while Regulation CC governs funds availability and procedures for dishonored checks. The Expedited Funds Availability Act, elaborated by Subpart B of Regulation CC, limits how long banks may delay making deposited funds available.

The UCC also regulates negotiable instruments and related banking practices. UCC Article 3 governs the relationship between parties who receive and transfer checks. Certificates of deposit (CDs) may also be negotiable instruments and subject to Article 3. The UCC contains further provisions related to banking. For example, UCC Articles 4A, 5, and 8 respectively govern funds transfers, letters of credit, and securities.

The 1930s banking crisis led to the development of federal insurance for deposits, administered by the Federal Deposit Insurance Corporation (FDIC). The FDIC guarantees a standard insurance amount of $250,000 per depositor, per insured bank. Funding for the FDIC comes from premiums paid by member institutions. Bank capital and liquidity requirements are also shaped by international accords, often referred to as Basel standards, which U.S. regulators implement through domestic regulation. These rules define capital adequacy, leverage, and risk-weighting for assets, and are periodically updated. Community banks may be subject to tailored or reduced compliance requirements, with regulators adjusting thresholds and reporting rules to reflect institution size. Fair lending obligations under the Community Reinvestment Act and related regulations continue to evolve through revisions, rescissions, and rulemaking.

Federal agency regulations concerning banking are codified in Title 12 of the Code of Federal Regulations. Chapter I contains regulations of the Comptroller of the Currency, Chapter II covers the Federal Reserve System, and Chapter III covers the FDIC. Other chapters cover the regulations of agencies such as the Export-Import Bank, Farm Credit Administration, National Credit Union Administration, Federal Financing Bank, Consumer Financial Protection Bureau, Federal Financial Institutions Examination Council, and the Farm Credit System Insurance Corporation.

Federal Material

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Other Portions of the U.S. Code:

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State Material

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[Last reviewed in September of 2025 by the Wex Definitions Team] 

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