Banking

Banks are financial institutions that function primarily to coordinate the activities of borrowers and lenders. Lenders deposit funds into a bank or credit union and may earn interest on their deposits. Borrowers may then borrow those funds and pay interest on their loan. State and federal statutory laws regulate banks and bank accounts in the United States. Banking regulations seek to uphold the integrity of the financial system by ensuring privacy, fraud prevention and honest lending. Significant banking legislation includes the Banking Act of 1933, which established the Federal Deposit Insurance Corporation (FDIC). Today, the FDIC provides federal insurance of up to $100,000 for deposits administered in participating banking institutions. Other important federal banking laws include the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), which phased out interest rate ceilings on deposits, and the Gramm-Leach-Bliley Act of 1999, which allowed for affiliation between banks, securities firms and insurance companies. Recent banking legislation, such as the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 and the Fair and Accurate Credit Reporting Transactions Act of 2003, has targeted the rise in financial terrorism and identity theft.

Finance

Finance law impacts individuals, companies and financial institutions, since it regulates all manners of financial transactions ranging from individuals investing in the stock market, using credit cards or borrowing money for a car, home or education to businesses financing their operations through equity or debt instruments.

A company secures equity financing by selling its corporate stock to investors. For early-stage companies, founders may fund operations by selling company stock to themselves, friends or family members. For those companies with particularly promising prospects, the company founders may be able to interest venture capitalists in investing their funds in the company. For more mature companies, selling stock in an intial public offering may be an option, as well as selling stock in a secondary offering if the company is already publicly traded. Investors who purchase stock in an equity financing own a portion of the company. The value of this stock may increase or decrease over time. For the company, equity financing offers a means to raise funding without having to incur debt; however, excess equity financing may dilute the ownership interests of existing shareholders. Federal and state securities laws regulate equity financing and dictate the types of investors that may subscribe to an equity offering as well as the type of disclosures that companies must make to their investors.

Alternatively, companies may also fund their operations by borrowing money that will have to be paid back over time. In some circumstances, such as when a company incurs debt to purchase equipment or land, the debt may be secured by the equipment or land. In contrast to an investor participating in an equity financing, the lender in a debt financing holds no ownership interest in the borrower. For the company, this means that the lender will not share in the company's future successes like an investor would. However, debt financing carries a downside in that the company must service the debt. And, if the company lacks the cash flow to service the debt, it may end up defaulting on the loan. In such a situation, the lenders may seek to repossess the borrower's assets or force it into bankruptcy. Sources for debt financing include friends and family members, banks, savings and loan institutions and the United States Small Business Administration.