Regulation H: Overview, definition, and example
What is Regulation H?
Regulation H is a rule issued by the Federal Reserve that outlines the requirements for state-chartered banks that are members of the Federal Reserve System. It covers a wide range of obligations, including capital adequacy, reserve requirements, risk management, consumer protections, and compliance with various federal laws. Regulation H also governs how these banks interact with the Federal Reserve and sets standards for their supervision and examination.
Why is Regulation H important?
Regulation H is important because it ensures that state-chartered member banks operate in a safe, sound, and compliant manner. It helps protect depositors, supports the stability of the banking system, and ensures consistency in how these banks are regulated. Regulation H also requires banks to comply with other major laws, such as the Bank Secrecy Act, Fair Housing Act, and Community Reinvestment Act, making it a central part of the federal banking regulatory framework.
Understanding Regulation H through an example
A state-chartered bank that joins the Federal Reserve System must follow Regulation H rules, including maintaining adequate capital ratios and complying with anti-money laundering regulations. If the bank fails to meet these standards, it may face increased scrutiny from regulators or risk being removed from the system. Regulation H ensures that all state-chartered member banks are held to consistent standards regardless of their state of incorporation.
Example of how Regulation H may be referenced in a compliance policy
Here’s how Regulation H may appear in internal bank documentation:
"The Bank shall comply with the requirements of Regulation H, including maintaining capital adequacy, fulfilling reserve obligations, and adhering to consumer protection laws as applicable to state-chartered member banks of the Federal Reserve System."
Conclusion
Regulation H is a foundational regulation for state-chartered member banks, setting standards that cover everything from capital and reserves to consumer compliance and anti-fraud controls. It ensures these banks meet federal expectations while maintaining their state charters. Financial institutions operating under the Federal Reserve umbrella must understand and follow Regulation H to maintain their membership and operate responsibly within the U.S. banking system.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.