While providing many benefits to our economy and citizens’ lives, financial services activities can also cause harm if left unsupervised. As a result, the United States and many other countries have found that regulating financial markets, institutions, and products is more efficient and effective than leaving the fairness and integrity of these activities to be ensured solely by market participants themselves. The federal laws related to financial regulation set forth specific authorities and responsibilities for regulators, although these authorities typically do not contain provisions explicitly linking such responsibilities to overall goals of financial regulation. Nevertheless, financial regulation generally has sought to achieve four broad goals: Ensure adequate consumer protections. Because financial institutions’ incentives to maximize profits can in some cases lead to sales of unsuitable or fraudulent financial products, or unfair or deceptive acts or practices, U.S. regulators take steps to address informational disadvantages that consumers and investors may face, ensure consumers and investors have sufficient information to make appropriate decisions, and oversee business conduct and sales practices to prevent fraud and abuse. Ensure the integrity and fairness of markets. Because some market participants could seek to manipulate markets to obtain unfair gains in a way that is not easily detectable by other participants, U.S. regulators set rules for and monitor markets and their participants to prevent fraud and manipulation, limit problems in asset pricing, and ensure efficient market activity. Monitor the safety and soundness of institutions. Because markets sometimes lead financial institutions to take on excessive risks that can have significant negative impacts on consumers, investors, and taxpayers, regulators oversee risk-taking activities to promote the safety and soundness of financial institutions. Act to ensure the stability of the overall financial system. Because shocks to the system or the actions of financial institutions can lead to instability in the broader financial system, regulators act to reduce systemic risk in various ways, such as by providing emergency funding to troubled financial institutions. Although these goals have traditionally been their primary focus, financial regulators are also often tasked with achieving other goals as they carry out their activities. These can include promoting economic growth, capital formation, and competition in our financial markets. Regulators have also taken actions with an eye toward ensuring the competitiveness of regulated U.S. financial institutions with those in other sectors or with others around the world. In other cases, financial institutions may be required by law or regulation to foster social policy objectives such as fair access to credit and increased home ownership. In general, these goals are reflected in statutes, regulations, and administrative actions, such as rulemakings or guidance, by financial institution supervisors. Laws and regulatory agency policies can set a greater priority on some roles and missions than others. Regulators are usually responsible for multiple regulatory goals and often prioritize them differently. For example, state and federal bank regulators generally focus on the safety and soundness of depository institutions; federal securities and futures regulators focus on the integrity of markets, and the adequacy of information provided to investors; and state securities regulators primarily address consumer protection. State insurance regulators focus on the ability of insurance firms to meet their commitments to the insured. The degrees to which regulators oversee institutions, markets, or products also vary depending upon, among other things, the regulatory approach Congress has fashioned for different sectors of the financial industry. For example, some institutions, such as banks, are subject to comprehensive regulation to ensure their safety and soundness. Among other things, they are subject to examinations and limitations on the types of activities they may conduct. Other institutions conducting financial activities are less regulated, such as by only having to register with regulators or by having less extensive disclosure requirements. Moreover, some markets, such as those for many over-the-counter derivatives markets, as well as activities within those markets, are not subject to oversight regulation at all. As a result of 150 years of changes in financial regulation in the United States, the regulatory system has become complex and fragmented. (See fig. 1.) Our regulatory system has multiple financial regulatory bodies, including five federal and multiple state agencies that oversee depository institutions. Securities activities are overseen by federal and state government entities, as well as by private sector organizations performing self-regulatory functions. Futures trading is overseen by a federal regulator and also by industry self-regulatory organizations. Insurance activities are primarily regulated at the state level with little federal involvement. Overall, responsibilities for overseeing the financial services industry are shared among almost a dozen federal banking, securities, futures, and other regulatory agencies, numerous self-regulatory organizations (SRO), and hundreds of state financial regulatory agencies. The following sections describe how regulation evolved in various sectors, including banking, securities, thrifts, credit unions, futures, insurance, secondary mortgage markets, and other financial institutions. The accounting and auditing environment for financial institutions, and the role of the Gramm-Leach- Bliley Act in financial regulation, are also discussed. Since the early days of our nation, banks have allowed citizens to store their savings and used these funds to make loans to spur business development. Until the middle of the 1800s, banks were chartered by states and state regulators supervised their activities, which primarily consisted of taking deposits and issuing currency. However, the existence of multiple currencies issued by different banks, some of which were more highly valued than others, created difficulties for the smooth functioning of economic activity. In an effort to finance the nation’s Civil War debt and reduce financial uncertainty, Congress passed the National Bank Act of 1863, which provided for issuance of a single national currency. This act also created the Office of the Comptroller of the Currency (OCC), which was to oversee the national currency and improve banking system efficiency by granting banks national charters to operate and conducting oversight to ensure the sound operations of these banks. As of 2007, of the more than 16,000 depository institutions subject to federal regulation in the United States, OCC was responsible for chartering, regulating, and supervising nearly 1,700 commercial banks with national charters. In the years surrounding 1900, the United States experienced troubled economic conditions and several financial panics, including various instances of bank runs as depositors attempted to withdraw their funds from banks whose financial conditions had deteriorated. To improve the liquidity of the U.S. banking sector and reduce the potential for such panics and runs, Congress passed the Federal Reserve Act of 1913. This act created the Federal Reserve System, which consists of the Board of Governors of the Federal Reserve System (Federal Reserve), and 12 Federal Reserve Banks, which are congressionally chartered semiprivate entities that undertake a range of actions on behalf of the Federal Reserve, including supervision of banks and bank holding companies, and lending to troubled banks. The Federal Reserve was given responsibility to act as the federal supervisory agency for state-chartered banks—banks authorized to do business under charters issued by states—that are members of the Federal Reserve System. In addition to supervising and regulating bank and financial holding companies and nearly 900 state- chartered banks, the Federal Reserve also develops and implements national monetary policy, and provides financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system. Several significant changes to the U.S. financial regulatory system again were made as a result of the turbulent economic conditions in the late 1920s and 1930s. In response to numerous bank failures resulting in the severe contraction of economic activity of the Great Depression, the Banking Act of 1933 created the Federal Deposit Insurance Corporation (FDIC), which administers a federal program to insure the deposits of participating banks. Subsequently, FDIC’s deposit insurance authority expanded to include thrifts. Additionally, FDIC provides primary federal oversight of any insured state-chartered banks that are not members of the Federal Reserve System, and it serves as the primary federal regulator for over 5,200 state-chartered institutions. Finally, FDIC has backup examination and enforcement authority over all of the institutions it insures in order to mitigate losses to the deposit insurance funds. Prior to the 1930s, securities markets were overseen by various state securities regulatory bodies and the securities exchanges themselves. In the aftermath of the stock market crash of 1929, the Securities Exchange Act of 1934 created a new federal agency, the Securities and Exchange Commission (SEC) and gave it authority to register and oversee securities broker-dealers, as well as securities exchanges, to strengthen securities oversight and address inconsistent state securities rules. In addition to regulation by SEC and state agencies, securities markets and the broker- dealers that accept and execute customer orders in these markets continue to be regulated by SROs, including those of the exchanges and the Financial Industry Regulatory Authority, that are funded by the participants in the industry. Among other things, these SROs establish rules and conduct examinations related to market integrity and investor protection. SEC also registers and oversees investment companies and advisers, approves rules for the industry, and conducts examinations of broker-dealers and mutual funds. State securities regulators—represented by the North American Securities Administrators Association—are generally responsible for registering certain securities products and, along with SEC, investigating securities fraud. SEC is also responsible for overseeing the financial reporting and disclosures that companies issuing securities must make under U.S. securities laws. SEC was also authorized to issue and oversee U.S. accounting standards for entities subject to its jurisdiction, but has delegated the creation of accounting standards to a private-sector organization, the Financial Accounting Standards Board, which establishes generally accepted accounting principles. The economic turmoil of the 1930s also prompted the creation of federal regulators for other types of depository institutions, including thrifts and credit unions. These institutions previously had been subject to oversight only by state authorities. However, the Home Owners’ Loan Act of 1933 empowered the newly created Federal Home Loan Bank Board to charter and regulate federal thrifts, and the Federal Credit Union Act of 1934 created the Bureau of Federal Credit Unions to charter and supervise credit unions.