A national bank is a large commercial bank that is supervised by the Office of the Comptroller of the Currency (OCC), which is an independent bureau of the U.S. Treasury. National banks, which include some of the best-known banks, can operate in any state, making them distinct from state-chartered banks. They play a pivotal role in the U.S. economy by offering a wide range of services — including savings and checking accounts, credit cards, and loans — on a national scale. Here’s a closer look at what national banks are and how they work.
Key Points
• National banks are chartered and regulated by the Office of the Comptroller of the Currency (OCC), an independent bureau of the U.S. Treasury.
• Today’s national banking system was largely shaped by the National Banking Acts of 1863 and 1864.
• Unlike state-chartered banks, national banks can operate in any state.
• National banks offer financial services like savings and checking accounts, credit cards, and loans, and investment products.
• National banks are crucial for the U.S. economy, facilitating interstate commerce and promoting economic growth.
Understanding National Banks
To understand national banks, it helps to know how they are officially defined, how our current system of banking came to be, and how national banks are regulated today.
Definition of a National Bank
In the U.S., a national bank is defined as a financial institution chartered and regulated by the federal government. National banks operate under a charter granted by the Office of the Comptroller of the Currency (OCC), an agency within the U.S. Department of the Treasury. They can legally operate in any state.
National banks are members of the Federal Reserve System and authorized to provide a wide spectrum of banking services, including lending, taking deposits, and managing financial transactions. National banks typically serve a national clientele, offering services across multiple states, making them key players in interstate commerce.
National banks include both online banks and traditional banks (the latter also being known as brick-and-mortar banks), and typically have “National” in their names or “N.A.” (for National Association) listed after their names.
The OOC maintains a current list of all active national banks in the U.S. If you don’t see your bank on the list, it is likely a state-chartered bank vs. a national one.
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History and Origins
Now that you know the national bank definition, consider how it came to be. The national banking system as it’s recognized today was shaped by the National Banking Acts of 1863 and 1864, which were enacted to create a system of national banks, establish a national currency, and offer greater financial stability during the Civil War. Here is some detail on how this unfolded:
• In the decades prior to the Civil War, regulation of banks was in the hands of the individual states, and each bank issued its own currency. Banks were required to get a charter from their state government. But increasing demand for banks led to corruption, with petitioners often bribing state legislators to obtain a charter.
• To reduce corruption and to make the process of opening a bank easier, many states enacted free banking laws. This meant that virtually anyone could open a bank, provided they met certain basic criteria, like having a certain minimum amount of capital and depositing bonds (or another type of security) with the state government to back the notes issued by the bank.
• To create a more organized system, Congress passed the National Banking Act in 1863 (originally known as the National Currency Act). Under this system, banks could only issue a new kind of paper money —- national currency —- backed by government bonds. The Act also established the OCC to regulate national banks.
While the National Bank Act has evolved over the years, it continues to provide the basic governing framework for the operation and regulation of national banks in the U.S. today.
Regulatory Framework
Here are some important points about how national banks are regulated:
• National banks in the U.S. are regulated by the OCC, which oversees their operations and ensures compliance with federal banking laws. As of 2024, the OCC oversees 1,040 national banks.
• National banks are also members of the Federal Reserve System, which enables them to borrow from the central banking system to meet reserve requirements or to address a temporary funding problem.
• In addition, national banks must belong to (and pay premiums to) the Federal Deposit Insurance Corporation (FDIC). This FDIC offers protection to account holders by insuring bank accounts up to $250,000 per depositor, per account category, per insured financial institution. (Co-owners of joint accounts at the same bank are each insured up to $250,000.)
This regulatory framework ensures that national banks remain financially sound, protect consumer interests, and follow guidelines for safe and effective banking practices.
Advantages of National Banks
National banks provide a number of benefits that make them attractive to customers. These include:
• Stability. National banks must meet stringent regulatory requirements, including maintaining sufficient capital reserves, which reduces the risk of bank failure.
• Oversight: Because they are supervised by the OCC and are members of the Federal Reserve System, national banks are held to high operational and ethical standards. This oversight reduces the risk of fraud and mismanagement.
• Broad accessibility. If you have an account at a national bank, you can likely find branches and/or in-network ATMs throughout the U.S. and, in some cases, overseas.
• Wide range of services. National banks often offer multiple checking and savings accounts as well as a variety of loan products. Some also offer investment services. A national bank can be a good fit for those who prefer to do all of their banking in one place.
These are the key features that set national banks apart from others.
National Banks vs State-Chartered Banks
The key difference between national banks and state-chartered banks is whether their charter was granted by the state government or the federal government. The OCC charters national banks; the state banking departments charter state banks.
National banks typically operate across state lines, providing a broader range of services on a national level. State-chartered banks, on the other hand, often serve local or regional markets, focusing on the needs of their specific communities.
Regardless of whether a bank is national or state-chartered, the way banking regulations work is quite similar. In addition, both national and state-chartered banks offer FDIC-insured deposits.
Becoming a National Bank
Becoming a national bank requires a financial institution to meet specific criteria and undergo a rigorous approval process. Here’s a look at the steps involved.
1. Application for a federal charter: Institutions that want to operate as national banks must apply for a charter from the OCC. The application process involves submitting detailed information about the bank’s business plan, management structure, and financial health.
2. Meeting capital requirements: National banks must meet minimum capital requirements, which ensure they have enough reserves to provide a safety net for their operations.
3. Applying for FDIC insurance: Final approval for an application to establish a national bank is not issued until the OCC receives written confirmation by the FDIC that the accounts of the bank will be insured by the FDIC.
These steps are necessary to make sure that a bank is qualified as a national entity.
The Role of National Banks
National banks play three critical roles in the U.S. economy:
• Providing financial services. National banks provide a wide range of essential financial services to individuals and businesses, including checking and savings accounts, loans, mortgages, and credit cards, investment products, and wealth management services.
• Facilitating interstate commerce. With their federal charters, national banks provide banking services to businesses and consumers throughout the U.S., facilitating transactions that drive economic activity on a national scale.
• Promoting economic growth. Without access to credit, many businesses would not be able to launch and grow. In addition, individuals would be unable to finance their education, cars, and homes. As a result, national banks play a crucial role in providing the credit necessary for economic growth.
In these ways, national banks play a crucial role in the U.S. economy and daily life.
Recommended: Guide to Commercial Banking
The Takeaway
Chartered under federal law, national banks play a vital role in the national economy. They offer a range of financial services to their customers, provide capital to support economic growth, and facilitate commerce across state lines.
National banks generally have more resources and a wider reach than state-chartered banks, which tend to offer more personalized, community-focused services. Which type of bank is the right fit for you will depend on your needs and personal preferences.
If you think a national bank would suit your needs, see what SoFi offers.
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FAQ
Are national banks safer than state-chartered banks?
Whether a bank is national or state-chartered, it must adhere to strict regulations. National banks are chartered, regulated, and supervised by the OCC to ensure they conform to national laws. State banks are chartered and regulated under state laws and are supervised by a state agency. Both types of banks are insured by the Federal Deposit Insurance Corporation (FDIC), which protects deposits up to $250,000 per depositor, per account category, per insured institution.
What are the major national banks in the United States?
The four largest banks in the U.S — each with over $1 trillion in assets — are:
• JPMorganChase
• Bank of America
• Wells Fargo
• Citibank
As national banks, these institutions are able to operate across state lines and offer a wide range of services, including checking and savings accounts, credit cards, mortgages, and investment options. National banks are chartered and regulated by the federal government, which allows them to provide banking services on a national scale.
How are national banks regulated differently than state banks?
National banks must adhere to a uniform set of federal regulations, including membership in the Federal Reserve System. State banks, on the other hand, follow state-specific regulations, which can vary by jurisdiction. Both types of banks are insured by the Federal Deposit Insurance Corporation (FDIC).
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