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National Bank

A commercial bank that is chartered and supervised by the federal government and operates under federal regulations

What is a National Bank?

A national bank in the United States refers to a commercial bank that is chartered and supervised by the federal government and operates under federal regulations. The primary federal regulator of a national bank is the Office of the Comptroller of the Currency (OCC), which is an agency under the U.S. Treasury Department. A national bank functions as a member bank of the Federal Reserve and must be a member of the Federal Deposit Insurance Corporation (FDIC).

 

National Bank

 

Summary

  • A national bank in the United States refers to a commercial bank that is chartered and supervised by the federal government and operate under federal regulations.
  • Internationally, a national bank is synonymous with the central bank of the country.
  • National banks and state banks can differ through how they operate, services they provide, regulations they follow, and fees and expenses they pay.

 

Characteristics of a National Bank

A national bank will receive a charter from the OCC and pay premiums to the FDIC. The benefit in return is that the bank will become a member of the Federal Reserve and will be able to borrow from the Fed when it needs to. Also, a bank that is chartered as a national bank receives coverage from the FDIC for its depositors. It provides insured protection for their depositors’ funds.

While it is not mandatory, it is common for a national bank to include “National,” “National Bank,” or “N.A.” – National Association – in their name.

Elsewhere internationally, a national bank is mentioned in the same light as a central bank or the bank is controlled by the national government of the country that sets economic and financial policy.

In both cases, national banks help provide an efficient banking system, which is a necessity for financial stability.

 

Functions of a National Bank

 

1. Provides services and stability

National banks play a pivotal role in the country’s financial system by providing banking services and stability. The bank allows for the safe holding of deposits and lending to help facilitate business.

 

2. Facilitates the auction process

In the United States, a national bank is able to facilitate the auction process of U.S. Treasury bonds.

 

3. Facilitates bank wires

In addition to facilitating the auction process, a national bank will also facilitate daily transactions with their local Federal Reserve Bank. The transactions are called Fed bank wires. As a record, national banks are required to generate call reports to the Fed once a quarter and make the reports public.

 

Examples of National Banks

 

United States

In its 2019 annual report, the Office of the Comptroller of the Currency stated that the federal banking system is comprised of 1,200 banks operating in the United States, with 840 of them being national banks.

Examples of national banks in the U.S. include:

  • PNC Bank
  • First National Bank
  • Citizen National Bank
  • Wells Fargo Bank
  • U.S. Bank

 

International

With the international definition of a national bank being associated with the country’s central bank, examples include:

  • Reserve Bank of Australia
  • Swiss National Bank
  • Bank of Canada
  • Bank of Japan
  • Bank of England

 

Requirements for National Banks

In order for a bank to become a national bank in the United States, it will need to become chartered by the Comptroller of the Currency within the Office of Treasury.

Included in the application to become a national bank will be articles of association, the filing of an organization certificate, confirmation that capital stock has been paid in, a minimum number of elected directors, and other requirements.

The bank will need to follow principles, including:

  • Maintaining a safe and sound banking system
  • Providing fair access to financial services to the entire community
  • Ensuring compliance with laws and regulations
  • Promoting fair treatment of customers

 

For the operations of the bank, the Comptroller of the Currency will look for the following:

  • Competent management with experience and expertise
  • Sufficient capital to support its financial services
  • Capability of achieving and maintaining profitability
  • Operating in a safe and sound manner
  • Does not carry a title that misrepresents the nature of the institution or the services it offers

 

National Banks vs. State Banks

 

Operations

As the name implies, a national bank will typically run nationwide operations, and a state bank will operate in a single state. However, some national banks will only conduct operations in one city or state.

 

Services

When it comes to services, state banks typically provide personal and commercial banking services. They include handling deposits, offering checking and savings accounts, and offering business, personal, and mortgage loans.

National banks provide broader banking services, which can include many of the services a state bank will offer. Key characteristics that separate a national bank from a state bank are the abilities to auction U.S Treasury bonds and complete daily transactions with the bank’s local Federal Reserve Bank.

 

Regulations

A national bank is regulated by the Comptroller of Currency, which is a federal agency. Therefore, a national bank follows federal regulations.

A state bank is chartered and examined by the department of banking for the state that a particular state bank is operating within.

State banks are given the option of whether or not to become a member bank within the Federal Reserve System. If a bank opts to become a member bank, there isn’t much of a difference between a state bank and federal bank, except the state bank will generally conduct business within the state.

If the state chooses to be a non-member bank, it will only be regulated by the state it does business in and the FDIC. In general, a non-member state bank will be less regulated than a member state bank.

 

Fees and Expenses

In addition to differences between regulations, the fees and expenses for a national bank and a state bank (member and non-member) vary. National banks pay a significantly higher amount of regulatory and examination fees than state banks.

 

 National BanksState Banks
OperationsOperate nationwide or within one city or stateOperate within the state it is chartered in
ServicesBroader banking services, auctioning U.S. Treasury bonds, and completing daily transactions with local Federal Reserve BankMostly personal and commercial banking services
RegulationsFollow federal regulations onlyOperate under state regulations as a non-member state bank and under federal regulations as a member state bank
Fees and ExpensesPay a high amount of regulatory and examination fees and expensesTypically pay lower fees and expenses than a national bank

 

Key Takeaways

In the United States, a national bank refers to a commercial bank that is chartered and regulated by the federal government. Internationally, a national bank is synonymous with a central bank. In either case, a national bank helps provide an efficient banking system and financial stability.

A bank will need to qualify and follow a process to become chartered as a national bank in the U.S. Depending on the differences in operations and which services a bank wants to provide, it may or may not make sense for a bank to opt for a national charter. With lower fees and less regulation on average, remaining a state bank could be the better option.

 

Additional Resources

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Business Banking
  • European Central Bank (ECB)
  • Retail Bank Types
  • Top Banks in the USA

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