State Banking Department

What Is a State Banking Department?

The term state banking department refers to a state-specific regulatory body that oversees the operations of financial institutions within its jurisdiction. A state banking department's primary responsibility is to ensure that the financial system is accessible, stable, and safe for all consumers. The agency also regulates and licenses non-traditional financial companies, namely those that lend and conduct any sort of financial business in that state.

How State Banking Departments Work

A state banking department is an agency that is responsible for chartering and regulating financial institutions that operate within its jurisdiction. The department also conducts routine examinations of these companies, including commercial banks, credit unions, and trust companies. The agency also licenses and regulates other financial companies, such as insurance companies, mortgage lenders, pawnshops, money transmitters, and payday lenders.

Not all banks that operate in a particular state fall within its jurisdiction. State-chartered banks and certain non-bank affiliates of federally chartered banks may or may not fall within the jurisdiction of that state’s banking regulatory authority. Other federally chartered banks are under the jurisdiction of the Federal Reserve System (Fed) or the Federal Deposit Insurance Corporation (FDIC).

The state banking department is where many consumers go to file a complaint against a financial institution that is within the banking department's jurisdiction. The Consumer Financial Protection Bureau (CFPB) maintains a database of contact information for state banking departments. The Office of the Comptroller of the Currency (OCC)also helps to direct consumer complaints to the appropriate banking regulatory agency, whether it is a state banking department or a federal agency.

Over 80% of the 5,000+ banks in the United States are state chartered.

Special Considerations

Many banks may fall within the jurisdictions of both state and federal banking regulatory authorities. A state-chartered bank that is a member of the Federal Reserve System is under the oversight of both that state’s banking department and the Fed.

State-chartered banks that are not a part of the Federal Reserve System fall under the supervision of both that state's banking department and the FDIC. In this manner, most banks are regulated by both state and federal regulatory agencies.

Depending on a bank's organizational structure and the type of charter it has, it can be subject to many redundant federal and state regulations. The combination of federal and state oversight of banks is known as the dual banking system.

History of State Banking Departments

State banking departments evolved out of a need for bank chartering agencies in the early days of the United States. At that time, there was no strong federal banking system. State banking departments were the first entities authorized to charter banks, and they continue to charter banks today. The dual banking system began in the late 19th century after the passage of the National Bank Act of 1863. It formed the OCC and authorized the agency to charter national banks.

State Banking Departments Vs. Other Regulators

The state banking department is only one of several state financial regulators. Other state financial regulatory bodies include state insurance regulators and state securities regulators. State securities regulators play a particularly important role in regulating investment advisors.

Most financial advisors do not have to register with the Securities and Exchange Commission (SEC), and they are not governed by the state banking department. If you have a question or complaint about a financial advisor, the North American Securities Administrators Association (NASAA) maintains a list of state securities regulators.