In the United States, a national bank is a commercial bank that is chartered by the U.S. Treasury and functions as a member bank of the Federal Reserve. These banks play a critical role in the financial ecosystem, having the ability to facilitate the auction process of U.S. Treasury bonds and ensuring they are members of the Federal Deposit Insurance Corporation (FDIC).
Internationally, the term ’national bank’ is generally synonymous with ‘central bank,’ representing banks that are controlled by national governments and responsible for setting monetary policies within their respective economies.
Key Takeaways
- In the U.S., a national bank refers to a commercial bank chartered by the U.S. Treasury.
- Internationally, national banks are often central banks controlled by national governments, responsible for monetary policy.
- National banks have important roles in daily financial operations, especially in collaboration with their regional Federal Reserve Banks.
The Functionality of National Banks
National banks, both in the U.S. and globally, serve as pillars in shaping the financial systems of their respective countries. An efficient banking system, whether via a central bank or the U.S. Federal Reserve, becomes indispensable for financial stability, especially during recessions or when weathering economic downturns.
These institutions facilitate daily transactions with their regional Federal Reserve Banks, including various banking operations like Fed bank wires. Furthermore, U.S. national banks must generate and publicly disclose call reports to the Federal Reserve on a quarterly basis.
Some prominent U.S. national banks include Chase Bank, Bank of America, Wells Fargo, Citibank, U.S. Bank, PNC Bank, and Capital One.
A Glimpse into History: The First U.S. National Bank
The inception of the first national bank in the U.S. is credited to Alexander Hamilton, the first Secretary of the Treasury. This bank, completed in 1797 and located in Philadelphia’s Independence National Historical Park, remains a National Historic Landmark. Among its financial contemporaries were the federal assumption of state war debts, establishment of a mint, and imposition of a federal excise tax. Hamilton’s objective was to establish financial order, improve national credit, and solve issues related to fiat currency.
International Examples of National Banks
National Australia Bank (NAB)
As one of Australia’s ‘big four’ banks, National Australia Bank (NAB) boasts over 1,500 branches and significant subsidiaries, including Clydesdale and Yorkshire banks in the UK.
Swiss National Bank (SNB)
The Swiss National Bank is pivotal in crafting Switzerland’s monetary policy and issuing Swiss franc banknotes. It ensures price stability and maintains a reliable cash supply, critical for facilitating money market liquidity.
Related Terms: commercial bank, Federal Deposit Insurance Corporation, monetary policy, financial system, central bank.
