The Financial System & Regulations

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The United States financial system has been a core part of the country and is developing over these past years. What is unique about this system, and makes it increasingly more confusing, is that the system evolves along with the United States financial state. This is due to events such as the 1930 Great Depression and the 2008 financial crisis leaving no real predictability in the system. With such an essential part of an American citizen's life being such a complex topic, it proves essential for it to be well understood. This blog aims to explain the general idea of the United States financial system along with the regulations.

Primarily, what has to be noted is that the United States financial system is so incredibly vast and  encompasses so many components that causes regulation to vary based on jurisdiction. This blog is sourced from a source that refers to a background rather than a one shape fits all. The financial system has also required change after drastic economic events such as the 1930s Great Depression and the 2008 financial crisis. Such events have caused the financial system to adapt and change in order to keep up with changing times and the changing state of the United States.

There are two types of people in the financial system, borrowers and savers. Savers save their funds while borrowers are borrowing or loaning funds. In order to maintain stability, the financial system matches savers funds with borrowers in order to ensure there are available funds for browsers to take. Firms can act as intermediaries that take assets from savers to make profit for the firm. Along with acting as intermediaries Firms can act as agents investing savers funds. Financial firms must act within  a set of regulations to ensure they do these actions lawfully and correctly. 

Financial activities can be divided into four main categories. The first is banking, those who give loans and save deposits. Insurance, those who collect money and give money back to the sender following a certain event. Securities or capital markets, trading of assets on capital markets(more about this can be found on my Capital Market blog). Financial market infrastructure, those who give public data out and other miscellaneous activities. There are two types of activities that these ‘sects of the financial system’ may do. Formal activities are government  regulated work outlined in job descriptions, and functional activities agree to say some activities from other categories may overlap and allow that. 

There are a few types of regulatory powers in the financial system. The Licensing, chartering, or registration regulate firms. Firms need proper credentials to do most financial activities, certain credentials give certain rights which are in turn given by certain people. To get credentials terms of agreement must be accepted and failure to do so could lead to criminal persecution. The second regulation sector is Rulemaking who mandates possible actions that firms can take.Oversight and supervision ensures rules are followed by executing examinations and such. Enforcement enforces punishments and enforces law. Finally, the resolution  sect of regulation revolves around problematic firms by taking control of them. The goals of these regulations is to simply maximize benefits and minimize illicit activity.

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There are a few types of regulation along with the actual sects. Prudential ensures safety and soundness by implementing risk management and mitigation. Disclosure and reporting ensure companies make publicly available all the information they must. Standard setting sets the standards for market and products. Competition ensures there are no monopolies or price fixing. Finally, price and rate regulation sets minimums and maximums for certain items. 

That's the financial system.

"Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework." Congress.gov, Library of Congress, 21 January 2026, https://www.congress.gov/crs-product/R44918.