A Department of Financial Institutions is a U.S. state agency that regulates banking institutions and applies state laws to financial institutions doing business there. Nearly every country in the world has government agencies dedicated to financial regulation, but an entity that is called a Department of Financial Institutions is almost always associated with a U.S. state. Each state has its own Department of Financial Institutions. These departments all have a similar mission — namely, to protect the financial holdings of citizens and to enforce the state’s banking regulations and laws — but the way they carry out these goals can vary.
In the United States, the legal system and law enforcement is broken into two branches: federal and state. Federal agencies enforce national laws, while state agencies have jurisdiction over state-specific issues. The U.S. Federal Deposit Insurance Corporation, or FDIC, is the federal agency charged with oversight of financial institutions on a national basis. Each state also has a Department of Financial Institutions that can exercise similar state-specific control.
United States federal law sets broad regulations for banking establishments. States must enforce these regulations, but they can also usually add their own modifications. This means that all state laws are based on a similar framework but can vary in a lot of significant ways. Licensing requirements, filing rules, and bank registration are usually among the things that states have the latitude to self-regulate. State Departments of Financial Institutions are the agencies responsible for carrying out this more specific regulation.
Financial institution oversight is a major part of any financial institution agency's work. The departments keep tabs on all banks, mortgage companies, and credit unions that do business in the state. Employees of the departments, who are usually called “agents,” periodically visit these institutions to review their books and evaluate their business processes to ensure compliance with state law. Agents perform audits and issue advisories on how to better comply with nuanced state regulations.
State regulations generally apply to any financial institution doing business there. This includes banks headquartered in the state as well as those based in other states or even other countries that do business with state residents. Most state laws are phrased in terms of citizen protection, not in terms of bank location. Any entity with clients in a state is usually subject to that state’s laws, at least as far as those clients are concerned.
A state Department of Financial Institutions is also concerned with registering financial institutions, chartering financial institutions, and licensing financial institutions that wish to begin doing business in a state. Opening a bank involves a lot more than simply opening a branch and attracting clients. A lot of paperwork usually also factors in, much of which goes through the reigning state government departments.
