Understanding the Banking System of the United States


The banking system in the United States differs from most of the other developed countries.

First of all, there is a dual banking system in the United States, letting a bank to be established under the charter of government of the state or the U.S. federal government. A national bank takes a charter from the federal government, whereas a state bank receives from a state government. There are also differences between the national and state banks about the agencies regulating the bank. Comptroller of the Currency, Federal Deposit Insurance Corporation (FDIC), and the Central Bank of the US, Federal Reserve System (Fed) regulate national banks while a state government agency regulates its state banks.

In the US, there have been a huge amount of banks having fewer assets. Having the worse experience due to the collapse the big banks in its early history, the citizens and government avoid big banks.

There are many restrictions affecting the national and state banks. The McFadden Act, prohibiting a commercial bank from opening a branch in another state, is a just a sample of restrictions of the US government on the banking system. Providing equal conditions for an honest competition and avoiding aggressive competition are the reasons.

Some states implement more restrictions upon their banks than other states, especially on having branches in other states, known as unit banking. There are also restrictions about branch banking which allows a bank to have two or more offices within a geographical area.

There are many other establishments working just like banks in the US. Saving institutions, credit unions are the most common ones. These institutions are established according to the charter of the state government or the federal government like the banks; and they have different regulatory systems. The Federal Home Loan Bank System (FHLBS) is an agency of the U.S. government working like the Federal Reserve. The FHLBS is responsible to regulate the savings institutions. The National Credit Union Administration is the agency responsible to regulate the credit unions.

Consequently, there are many types of banking institutions in the United States. Commercial Banks, providing services for businesses; Savings Banks, savings institutions, providing services for lower-income workers; Savings and Loans Associations, giving housing loans to lower income workers; Credit Unions getting emergency loans for the people are the most common types.

There are also different types of bank accounts. Checking accounts and savings accounts are the most common. When you open a checking account, you get a checkbook and a bank card, by which you can make purchases and pay bills. These accounts mostly have monthly paid balances and service fees. If you want to save money and earn interest for a long time, you have to open a savings account. Interest rates, minimum balances, and service fees for savings accounts changes depending on the amount of money deposited and it differs from bank to bank.

The federal government of the United States is trying to protect the stability of its economy by having such complex banking system. It is a system working in relationship with the financial markets. Via such an intertwined system, they are aiming to control the inflation rate, unemployment and interests.

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Understanding the Banking System of the United States

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