What it means
In the United States, banks can be chartered either by a state or by the federal government. A national bank holds a federal charter, which allows it to operate under national rules.
It must also be a member of the Federal Reserve System and carry deposit insurance. The system dates back to the 1860s, when national banking legislation created federal charters.
The Office of the Comptroller of the Currency, a US Treasury agency, supervises national banks. Their names usually include the word National or the letters N.A., so you can often spot one from the name alone.
National charters appeal to large banks that operate across many states, because one set of rules applies to all of their branches. State-chartered banks, by contrast, are mainly supervised by their state regulator and may have a different mix of rules.
Both types can offer the same everyday services such as accounts, loans and payments, so customers rarely notice the difference. Outside the United States, the phrase has other meanings.
In several countries the central bank is called the National Bank of that country, and in others a government-owned commercial bank has national in its name. Some banks simply use the word as branding.
For a manager choosing a bank, the main questions are about safety, services and cost rather than the charter. Check that deposits are covered by the local deposit insurance scheme and understand which regulator supervises the bank.
The supervisor matters when something goes wrong. A national bank answers to its federal regulator for capital, lending standards and consumer protection, and it must publish regular financial reports that business customers can read.
Reading those reports before moving a large balance is a sensible habit.
In practice
Real-world examples.
Example
A US retailer opens its main operating account with a national bank that has branches in all 20 states where it trades. Having one national supervisor and one set of rules makes its cash management simpler. The treasurer also negotiates a single fee schedule covering every account.
Example
A foreign investor reading about a small European country learns that its National Bank is the central bank. It sets monetary policy and issues the currency, which is quite different from a US national bank. He adjusts his research notes to avoid mixing up the two.
Example
A community lender with $900,000,000 of assets decides to convert from a state charter to a national charter so that it can offer the same products in neighbouring states without applying for separate approvals. The conversion requires approval from its regulator and a vote of its shareholders.
Case study
Seen in the real world.
Meridian National is an illustrative, fictional bank that began as a small state-chartered lender with six branches. As its business customers expanded to other states, the managers found that each new state brought extra paperwork and slightly different rules.
The board studied converting to a national charter, hiring outside lawyers to advise on the process. After a review of costs, regulatory fees and the extra reporting involved, it decided that the single supervisor and uniform rules would save about $400,000 a year in compliance work.
In this illustrative story the conversion took 14 months and customers noticed only a change in the bank's name on their statements, with no change to their accounts or deposit protection. The example shows that a charter is a regulatory choice, not a sign of safety or quality on its own. Customers cared far more about service and branch access than the type of charter.
Watch out
Common mistakes.
- Assuming a national bank is owned by the government, when in the United States it is a private bank with a federal charter and private shareholders.
- Believing deposits in national banks are safer than those in state banks, when both can be covered by deposit insurance up to the same limits.
- Thinking the word national in a bank's name always means a federal charter, when it can simply be branding.
Questions
People also ask.
What is the difference between a national and state bank?
A national bank has a federal charter and a federal supervisor, while a state bank has a state charter and is supervised mainly at state level. For everyday customers the practical difference is usually small.
Who regulates national banks in the United States?
The Office of the Comptroller of the Currency is the primary regulator. The Federal Reserve and the deposit insurer also play supporting roles.
Is a national bank a central bank?
Not in the United States, but in some countries the central bank is named the National Bank. Always check the country before assuming which meaning applies.
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