Banking law Frequently Asked Questions on United States.

How is a "bank" defined for the purposes of US law? What types of bank or banking institutions have evolved?

U.S. law generally defines a "bank" to mean an organization engaged in the business of receiving deposits and making commercial loans under a bank charter granted by a state or the federal government. U.S. banks engage in a broad range of financial activities, including financial and investment advice, trust services and securities transfer, custody and clearing/settlement functions. Many types of banks have evolved under state and federal legislation. The largest and most internationally active U.S. banks are commercial banks, which are comprised of national banks, operating under a federal charter, and state banks, chartered by individual states. Commercial banks have the broadest deposit-taking and commercial lending powers permitted under U.S. law. Other important types of banking organizations that evolved include savings and loan associations (sometimes called "thrift" institutions), which traditionally offered savings accounts and home loans, and industrial loan companies, which may be restricted in their ability to offer demand deposits but may be controlled by non-financial companies. Another bank-like financial institution in the U.S. is the not-for-profit credit union, which provides savings, transaction and lending services to its members and is often directed by a volunteer board.

A bank holding company is a company that controls a commercial bank. Bank holding companies must register with the federal government (the Federal Reserve Board). Banks may also conduct banking activities through subsidiaries. A savings and loan holding company is a company that controls a savings and loan association and may be required to register with the federal government (the Office of Thrift Supervision).

What range of activities is performed by banks in relation to domestic and international matters? Please give an overview. As financial intermediaries, US banks provide a wide range of financial services, both in and outside the U.S. Banks continue to provide their historically broad range of services relating to extending credit, deposit taking and fiduciary services. As to credit, these services include loans, letters of credit, standby letters of credit, and guarantees. As to deposits, these include interest and noninterest bearing accounts, as well as related products such as sweep accounts and cash management vehicles. In the fiduciary area, in addition to personal and corporate discretionary and directed trust, banks offer separate accounts and common and collective funds.

Banks have responded to the increasingly complex financial services marketplace by providing new products and services, including derivatives, electronic verification, and funds and securities products (although recent federal legislation may limit the securities activities to a certain extent). Through affiliates, qualifying banking institutions can engage in an even greater range of activities, including unlimited securities underwriting and merchant banking.

Outside the US, banks themselves have broader authority, so as to most effectively compete with their foreign counterparts, either directly or through subsidiaries. Among other activities, US banks are able to manage funds offshore, and engage in underwriting and related activities.

From which source(s) do banks derive their powers? National banks derive their authority from the National Bank Act. State banks derive their authority from the state banking laws of the state in which the bank is headquartered. Savings and loan associations may derive their authority from state law or, if operating under a federal charter, from the Home Owners Loan Act. Industrial loan companies derive their authority from state law. Credit unions derive their authority from either the federal law (the Federal Credit Union Act) or state law. All U.S. banking organizations are subject to certain federal laws, such as the Federal Deposit Insurance Act, which imposes requirements on U.S. banks that offer FDIC-insured deposits.

Why do banks need to be supervised and regulated? What principles underlie the regulatory structure in the US? Maintaining public confidence in the safety and soundness and reliability of banks is a foundation of the U.S. financial system. Receipt of a banking license and eligibility to accept government insured deposits is a privilege and competitive advantage that is regarded as bringing with it obligations to the public and specified limitation on the types of activities in which a bank may engage and the types of investments that a bank may purchase, among other things. Three key principles underlying U.S. banking law are: (i) that banks should not engage in "commerce"; (ii) that a strong capital base that reflects the risk profile of a bank is a pillar of a bank's safe and sound operation; and (iii) that the dual federal and state banking system and the availability of various choices of charter promote the creativity and profitability of U.S. banks.

Which laws govern the regulation of banks? Is bank regulation exclusively governed by federal law? Banks are regulated under state and federal law, and which laws and regulations govern which activities in any particular case is largely a function of the charter of the financial institution. The activities and investments of federally chartered banks, such as national banks or federal savings banks and savings and loan associations ("federal thrifts"), are generally governed by federal statutes (e.g., in the case of national banks, the National Bank Act) and federal regulations (e.g., in the case of federal thrifts, the regulations of the Office of Thrift Supervision). The activities and investments of state chartered banks are primarily regulated by the banking authorities of the pertinent state jurisdiction, with some federal oversight performed by the Federal Deposit Insurance Corporation ("FDIC") as the insurer of deposits. On the other hand, certain activities of federally chartered organizations, for example, those relating to certain matters consumer matters, are governed by state laws or regulations.

To which banking institutions do the relevant laws apply? The National Bank Act applies to national banks.

The Federal Reserve Act applies to banks that are members of the Federal Reserve System, including national banks and state banks. The Federal Reserve Board is the primary federal regulator of state member banks under the Federal Reserve Act.

The Federal Deposit Insurance Act applies to all banks that are FDIC-insured. The Federal Deposit Insurance Corporation is the primary federal regulator of state nonmember banks under the FDI Act.

The Bank Holding Company Act applies to companies that own or control banks in the United States, including foreign banks and companies.

The Home Owners' Loan Act applies to federal savings associations and their holding companies.

Banking institutions also are subject to regulation under a variety of other federal and state laws, including consumer protection laws, anti-money laundering laws, securities laws, antitrust laws, and the Community Reinvestment Act.

What are bank holding companies, and are they subject to regulation?

A bank holding company is a company that owns or controls a bank. All bank holding companies are regulated under the Bank Holding Company Act and Regulation Y thereunder, as administered by the Federal Reserve Board. The BHC Act regulates the activities of bank holding companies and their subsidiaries and provides a regulatory review process for mergers and acquisitions of banks by bank holding companies. Federal Reserve examiners examine bank holding companies for compliance with the BHC Act and other laws.

Are Internet banks regulated? Banks that operate on the Internet are regulated. An Internet bank may have a state or national charter. If the bank takes deposits, it must be FDIC-insured. Under the Glass-Steagall Act, it is unlawful for any institution to engage in the business of deposit-taking without being subject to banking regulation.

What have been the most important pieces of recent legislation in this context? Please briefly describe the impact of the FDIC Improvement Act 1991, Basel II and the Sarbanes-Oxley Act  Key legislation over the past twenty years would include the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994, and the Graham-Leach-Bliley Act of 1999. FDICIA, among other matters, limited investment and other activities of state chartered, FDIC insured banks to those investments and activities permitted to national banks, while significantly enhancing the enforcement powers of the FDIC. Reigle-Neal authorized a broader range of interstate banking combinations, and Graham-Leach Bliley, among other things, eliminated many of the restrictions on banking organizations' involvement in the securities business as well as other financial services businesses.

During this period other legislative and regulatory initiatives were also of great significance. For example, new capital regulations under the proposed "Basel II" capital regime will revise methodologies and standards for determining capital adequacy for the nation's largest, primarily internationally active banks. In addition, the Sarbanes-Oxley Act of 2002, federal legislation imposing a wide range of corporate governance reforms, applies to publicly held financial organizations and has a material impact on the governance and related processes of these organizations.

What programs should banks have in place to ensure compliance with the relevant legislation//regulations? What cost burden does compliance place upon banking institutions? Financial institutions should have a myriad of programs in place to ensure compliance. These programs include an ongoing education awareness and training initiative, regulatory oversight tracking metrics, issue escalation plan, ongoing monitoring, and, above all, regular communications with internal stakeholders and external regulators. The cost of compliance for financial institutions has increased significantly over the last 18 months. However, the cost of noncompliance is much, much greater.

Which bodies are responsible for supervising and regulating banking institutions, and what powers do they enjoy? Under the U.S. dual banking system of federal and state banking charters, several bodies are responsible for supervision and regulation. The charter type determines which body or bodies are involved.

States are the primary regulators of banking organizations chartered under state law, including state banks, state savings banks, state savings and loan associations and industrial loan companies. States may also impose regulation at the bank holding company level.

The Federal Reserve Board is responsible for supervising and regulating bank holding companies, which are companies that own or control a commercial bank. Bank holding companies that meet certain criteria may be treated as "financial holding companies" and gain broad powers including securities and insurance underwriting and merchant banking. U.S. bank holding companies may not affiliate with non-financial companies or engage in non-financial activities. The Federal Reserve Board divides responsibility with the states for supervising and regulating state banks that are members of the Federal Reserve System.

The Office of the Comptroller of the Currency ("OCC") is responsible for supervising and regulating national banks and their subsidiaries. National banks are commercial banks with broad deposit-taking, lending and other banking powers. Many of the largest U.S. banks are national banks, because the National Bank Act facilitates providing banking services across state lines.

The Office of Thrift Supervision ("OTS") is responsible for federal supervision and regulation of savings and loan associations, their holding companies and their subsidiaries. The OTS divides responsibility for supervision and regulation with the states with respect to state-chartered savings and loan associations. While savings and loan associations are subject to commercial lending restrictions, associations acquired before 1999 may be owned or controlled by non-financial companies.

The Federal Deposit Insurance Corporation ("FDIC") is responsible for federal supervision and regulation of state banks that are non-members of the Federal Reserve System and industrial loan companies. The states remain the primary regulators. State non-member banks have essentially the same commercial banking powers as state member banks.

The National Credit Union Administration is responsible for federal supervision and regulation, and deposit insurance, of credit unions. States are primary regulators of state-chartered credit unions. The membership and non-profit characteristics of credit unions have generally limited their size.

Is it necessary to obtain authorization or approval before taking control of, or establishing, a banking institution in the US? Yes. Various federal and state laws apply to both the establishment and acquisition of control of depository institutions in the US. In many instances, the approval of more than one regulatory authority may be required to complete a transaction.

In the US, depository institutions may be organized under either federal or state law. Each available charter type offers various corporate powers, and there are advantages and disadvantages to each charter. Therefore, the organizers of a proposed institution should seek advice from qualified counsel to determine the most appropriate charter type in light of the proposed ownership structure and business plan for the institution.

In general, the organizers of a proposed banking institution must seek approval from both the chartering authority for the institution and, if the institution will accept deposits, from the Federal Deposit Insurance Corporation. If the institution will be organized under state law (for example, a Utah industrial bank or a New York bank or trust company), then the banking regulator for the chartering state must approve the formation of the institution. State chartered institutions that seek membership in the Federal Reserve System must be approved by the Federal Reserve Board. With respect to federal law, the Office of the Comptroller of the Currency must approve the institution if it will be organized as a national bank, and the Office of Thrift Supervision must approve the formation of the institution if it will be organized as a federal savings association (also called a thrift).

Various federal and state laws also apply to the acquisition of control of depository institutions in the US. In general, any company that proposes to acquire control of a bank in the US must first seek approval from the Federal Reserve Board under the Bank Holding Company Act. Any company that proposes to acquire control of a savings association must obtain prior approval from the Office of Thrift Supervision under the Home Owners' Loan Act. Generally, any person that acquires control of a depository institution must give prior notice and obtain the nonobjection of the appropriate federal bank regulatory agency under the Change in Bank Control Act. In addition, many states also impose change in control requirements on state chartered institution. In many cases, a person or company will be deemed to acquire control of a US bank or savings association at levels of ownership as low as 10% of any class of voting securities of the institution (or as low as 5% in the case of an organization that is treated as a bank holding company for purposes of US law). Nonvoting equity, convertible equity, options, arrangements that restrict transfer of voting equity, voting agreements, management interlocks, and other arrangements either alone or in combination may result in control of a US bank or savings association. Accordingly, prospective investors should seek advice from qualified counsel before acquiring an interest in a US institution to determine whether there are any notice or application requirements.

For which activities do banking institutions need to obtain authorization or approval? Historically, all companies treated as bank holding companies under US law were required to give notice to, and obtain the approval of, the Federal Reserve Board before engaging in activities other than banking or managing or controlling banks (e.g., to engage in nonbanking activities) or acquiring more than 5% of any class of voting securities (or otherwise acquiring control) of a company engaged in nonbanking activities. Under the Bank Holding Company Act, bank holding companies could only engage in nonbanking activities "closely related to banking," including lending, providing investment advice, certain types of management consulting, brokerage, limited underwriting and dealing, and other activities approved by the Federal Reserve Board. For the most part, these restrictions were only applicable to activities conducted within the US. Foreign organizations meeting certain requirements could (and still may) engage in activities outside the US free from significant US regulation, and US based banking organizations could engage in a somewhat broader range of activities in foreign countries subject to a different set of rules.

However, as a result of recent statutory changes in the US, bank holding companies with "well managed" and "well capitalized" banks may elect to be treated as financial holding companies. Financial holding companies may engage in a broader range of activities than historically permitted for bank holding companies. These financial activities include previously authorized nonbanking activities, insurance activities, underwriting and dealing in all types of debt and equity securities, and merchant banking (making investments in nonfinancial businesses subject to certain holding period and other limitations). In general, a financial holding company must notify the Federal Reserve Board within 30 days after engaging in a new financial activity or acquiring a company engaged in financial activities. Bank holding companies that have not elected financial holding company status remain subject to the older rules described above. In general, savings and loan holding companies (e.g., companies that own or control a bank or savings association) may engage only in financial activities, and they are not required to notify the OTS before engaging in new activities.

Activities conducted by a bank or savings association (either directly or through a subsidiary) may be subject to more stringent requirements, depending upon the bank's charter type. As a general matter, banks and savings associations may only engage in banking activities,or activities related to or incidental to authorized banking activities, and prior notice or approval is often required to invest in a subsidiary or engage in new activities through a subsidiary. Federal law limits the permissible range of activities and investments for state chartered banks to those permissible for national banks regulated by the Office of the Comptroller of the Currency.

What sanctions are available in the event of breach of banking regulations? By whom are these sanctions imposed? What procedure applies where it is proposed to impose a sanction? Both Federal and state bank regulatory agencies have the power to impose sanctions upon banks, their directors and officers and, in some cases, other agents or third parties who participate with or take actions on behalf of the bank (Institution Affiliated Parties or "IAPs"). Federal bank regulators can, among other things, impose cease and desist orders against banks and their IAPs requiring cessation of activities that violate law or regulation and that require certain corrective action to be taken within stated time periods. The Federal agencies also can remove bank directors and officers and impose civil money penalties on banks or their IAPs. In addition, Federal agencies, with the assistance of the U.S. Department of Justice, can bring criminal actions against banks and/or their IAPs Each state banking regulator has its own set of civil and criminal sanctions that it may impose on banks and those affiliated with the bank. Sanctions imposed by bank regulatory agencies are subject to appeal through the court system, but courts tend to give deference to the special expertise of the banking agencies with respect to the requirements and interpretation of banking law and regulation

Can a bank's directors or officers be made liable for the acts or omissions of the bank in relation to its banking activities, or for failure to adhere to banking regulations? Yes. Bank directors and officers who fail to meet their common law fiduciary obligations to the bank (duty of loyalty and duty of care) or who violate a banking law or regulation, or engage in an unsafe or unsound banking practice, may be held personally liable or be subject to monetary penalties or other sanctions. Some banking agencies, including the FDIC, have stated that, generally, they will not seek monetary penalties against an outside director of a bank unless his or her conduct is determined by the agency to be "grossly negligent," in reckless disregard of the consequences or intentional.

What regulations apply to foreign banks operating in the US? Under the International Banking Act and the Bank Holding Company Act, a foreign bank that seeks to establish a presence in the United States through a separately incorporated US bank subsidiary, or directly through an office of the foreign bank (i.e., a branch, agency or representative office), must first submit an extensive application to, and receive the prior approval of, the Federal Reserve System, as well as applying for any applicable state approvals. Any such subsidiary or office is subject to ongoing Fed (and state, if applicable) supervision and examination.

A foreign bank that operates in the United States through a subsidiary bank or through a branch or agency is generally treated as a "bank holding company" subject to all the provisions of the Bank Holding Company Act, including the limitations on nonbanking activities. However, under Regulation K a qualifying foreign bank is permitted to conduct more extensive nonbanking activities outside the US than US banking holding companies are. A foreign bank that operates in the US only through a representative office is not treated as a bank holding company and there are no US regulatory restrictions on its ability to conduct nonbanking activities.

What regulations apply to a US banks' international activities? In what form can a US bank carry out business abroad? Regulation K is the federal regulation that addresses the scope of international activities permitted to national banks and state member banks. State non-member banks are subject to analagous FDIC regulations, and all state-chartered banks may be subject to applicable state law provisions as well. In order to establish a level playing field for US banks competing abroad, Regulation K generally permits subject banks to engage in a greater range of activities abroad than is permitted to them at home.

A US bank subject to Regulation K can, with the permission of the Federal Reserve System, operate abroad through a branch or other office, Edge or Agreement corporation, through a joint venture, or through a subsidiary. Regulation K has detailed rules laying out the international activities permitted to each type of entity.

What are the likely future regulatory developments? Future regulatory developments are likely to principally occur in three areas: (1) bank powers; (2) safety and soundness; and (3) consumer protection. As to bank powers, continuing sophistication in the financial services marketplace, as well as US bank regulators seeking to allow banks to compete with nonbank and foreign enterprises, are likely to continue the expansion of the types of products and services which banks can offer in their role as financial intermediaries. Recently, these developments have allowed banks to engage in a wide variety of derivatives, physical commodities, and funds.

However, while market forces are increasing bank powers, bank regulators also are very focused on ensuring the safety and soundness of the institutions they supervise. Accordingly, as risks are identified, bank regulators can be expected to address those issues through regulations or policy statements. For example, regulators recently have identified so-called "alternative mortgages", such as interest only and negative amortization loans, as well as commercial real estate lending concentrations, as potential risk issues, and are expected to issue policy statements in those topics in the coming months.

Finally, consumer protection will always be at the forefront of Congressional and regulatory attention. Issues like data breach, privacy, and perceived predatory lending are recent examples where legislatures and/or regulators have become involved, and similar issues can be expected to arise in the future.

What rules govern a bank's relationship with its customer? What, in outline, are the bank's obligations to its customer? The relationship between a bank and customer seeking to establish or maintaining a deposit account (Account) is fundamentally a voluntary and contractual matter between the bank and the customer. The terms and conditions of such relationship, as well as the customer's rights and responsibilities regarding his or her Account, typically are set forth in a bank's deposit account agreement (Agreement). An Agreement typically is given to a customer when opening an Account with a bank, or on request. A customer typically agrees to be bound by the Agreement either by signing an Account signature or other documentation a bank may require or maintaining an Account with a bank. Accounts are also subject to state and federal laws and regulations that may be applicable to Accounts, and to the extent consistent with the Agreement, the general banking practices in the area served by the bank.

How have the Gramm-Leach-Bliley Act, the USA Patriot Act and the Bank Secrecy Act affected the obligations of banks in connection with obligations of confidentiality/privacy? Financial institutions have had regulatory obligations to ensure the confidentiality of customer information. Gramm-Leach-Bliley Act, USA Patriot Act, and the Bank Secrecy Act have all refined previous privacy rules and regulations. Customer notification of the manners in which a financial institution uses ones' nonpublic information is one of the most significant change.

In what circumstances is a bank obliged to disclose information which would otherwise be confidential? Banks in the United States are obligated under various federal and state laws and regulatory requirements to safeguard and keep private information received from their customers. Those general obligations may be overriden in various circumstances. For example, banks may be required to turn over records under court order or subpoena. Banks also may be required to report to the federal government if the bank has done business with a customer whose name appears on a government-maintained list of drug kingpins, terrorists, and other prohibited parties or if one of the bank's customers has engaged in a transaction that raises suspicions of money laundering, terrorist financing, or other illicit activities.

What programs should a bank have in place to ensure compliance with anti-money laundering regulations? Banks in the United States are required under the Bank Secrecy Act, as amended and revised by the USA Patriot Act, to have in place comprehensive, risk-based anti-money laundering programs. Such programs must include written policies and procedures, the designation of anti-money laundering compliance officers, training for relevant employees, and an independent audit or testing component. Bank anti-money laundering programs also are required to include specific procedures to identify customers at account opening, to monitor for and report on transactions that raise suspicions of money laundering and other illicit activities, and to keep various kinds of records for review and potential use by the government.

What are a bank's obligations in connection with maintenance of security? Can a bank be liable to its customer in respect of a breach of security?

Generally, banks are obligated under federal and state statutes and state common law to maintain the privacy of their customers' financial records. They are also expected by bank regulators as part of risk management and safe and sound operations to have procedures and policies in place to maintain the security of sensitive bank data, including customer information. These requirements also extend to third parties that provide data processing and other services to banks. Banks and third party service providers are routinely examined by the regulatory authorities for compliance with these requirements.

In addition, guidance from the federal bank regulators and numerous state laws require that bank customers (which may include business customers) be informed of certain security breaches at banks and third party service providers. Generally, under the federal guidance, banks are required to notify customers when a breach has resulted in access to sensitive customer information and it is reasonably possible that unauthorized use of such information will occur. State requirements may differ. The U.S. Congress is actively considering legislation that will impose federal statutory notification requirements and preempt state laws on the subject.

A security breach or other failure to maintain the confidentiality of sensitive customer information may result in liability for a bank. Such liability may be based on specific privacy law provisions or federal or state unfair or deceptive acts or practices statutes; in either case, these laws may provide a private cause of action in addition to possible imposition of government sanctions by a federal or state regulatory authority or state attorney general

Does a bank enjoy rights of lien or set-off against its customer? What other remedies are available to a bank concerned to protect itself?

Under the law of most states, a bank enjoys a lien (commonly known as a "banker's lien") on instruments, securities and certain other property coming into the bank's possession in the ordinary course of the bank's business, exclusive of property delivered to the bank solely for safekeeping or custodial purposes and property pledged to secure a specific debt. The lien arises upon the bank's coming into possession of the property and need not be evidenced by an express agreement. The lien secures credit extended by the bank on the basis of the property, but is not limited solely to credit related to the property. The banker's lien in most states is based on traditional common law principles, but in some states is based on a specific statute. The Uniform Commercial Code as adopted in most states provides for a number of similar liens or security interests: a collecting bank has a security interest in checks, drafts or other items delivered to the bank for collection to secure credit extended by the bank against the items; a bank honoring a draft under a letter of credit has a security interest in bills of lading and other of documents presented to the bank in connection with the submission of the drafts and a bank extending credit for the purchase of investment securities on behalf of a custodial customer has a security interest in the purchased securities. As in the case of a banker's lien, these security interests need not be evidenced by an express agreement.

Also, in most states a bank enjoys a right to set off amounts due a customer against amounts owing from the customer. Typically, this would involve the set off of the customer's deposit account against amounts due from the customer on loans or other debts of the customer to the bank. The right of set off is not based on lien principles, but the netting of mutual obligations. As in the case of a banker's lien, there is no need for an express agreement; the right arises from the nature of the relationship and the existence of mutual obligations. The deposits must be unrestricted and not devoted to a special purpose and the parties must be the same; that is, the bank holding the deposit must be the party to whom the customer is indebted and the customer on the account must be the customer obligated on the indebtedness and, in each case, acting in the same capacity. Finally, the mutual obligations must be due and owing. In some states, there are limitations on the right of a bank to exercise a set off of deposit balances against obligations of a customer where the obligations are otherwise secured.

Most banks supplement lien and set off rights arising at law by requiring the customer to make an express grant of lien and set off rights. A typical provision found in a promissory note would read as follows:

Any securities or other property of the Maker in the possession of the Bank may at all times be held as collateral for the payment of the Note. Regardless of the adequacy of collateral, any deposits or other sums at any time credited by or due from the Bank to the Maker may be applied to or set off against the obligations of the Maker under this Note.

The enforcement of liens and the exercise of set off rights are restricted in the event of the bankruptcy of the bank's customer

What legislation/regulation governs banks' investment and securities activities? What are a banks' principal obligations in this regard?

Banks and their affiliates derive their investment and securities powers from their bank chartering authority. The Glass-Steagall Act generally limits bank investments in securities to investment quality debt securities and government securities. State banks have somewhat broader investment powers under state law and the Federal Deposit Insurance Act.

The Glass-Steagall Act generally prohibits banks from directly underwriting and dealing in equity securities, but allows them to act as securities brokers, investment advisers, and mutual fund managers. They are permitted to underwrite and deal in government securities. The Glass-Steagall Act does not limit the securities activities of nonbank affiliates of banks.

Banks are required to register with the Securities and Exchange Commission as broker-dealers if they engage in retail securities brokerage activities but otherwise generally are exempt from regulation under the federal securities laws. Affiliates of banks are not exempt from the securities laws when they engage in securities activities.

What regime governs a bank's insolvency? What is the "deposit insurance scheme" in the case of a bank or savings institution becoming insolvent? Who administers it? When a financial institution becomes insolvent, the chartering authority generally appoints a receiver to take ownership of the bank and either arranges for the purchase and assumption of its assets and liabilities (including insured deposit liabilities) by a healthy institution, or in relatively unusual situations, takes steps to liquidate it. The chartering authority (either the state banking authority in the case of a state chartered bank, the OCC in the case of a national bank, or the OTS in the case of a federal thrift) makes the determination of insolvency, and generally appoints the deposit insurer -- the Federal Deposit Insurance Corporation-- as receiver. The deposits of the customers of the insolvent bank are insured up to applicable limits by the FDIC and are generally either assumed by another institution in the case of a purchase and assumption transaction, or paid out by the FDIC in the case of a liquidation.

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