What Is a National Bank?
In the United States, a national bank is a commercial bank. The comptroller of the currency of the U.S. Treasury will charter a national bank. This institution will function as a member bank of the Federal Reserve and is an investing member of its district Federal Reserve Bank. National banks may facilitate the auction process of U.S. Treasury bonds. It is essential that they are members of the Federal Deposit Insurance Corporation (FDIC).
Internationally, "national bank" is synonymous with "central bank," or a bank controlled by the national government of a country. Central banks set monetary policies within national economies.
Key Takeaways
- In the U.S., a national bank is a commercial bank chartered by the U.S. Treasury.
- Internationally, national banks are controlled by the international governments themselves and are also called "central banks."
- National banks may facilitate daily transactions with their local Federal Reserve Bank.
How National Banks Work
National banks in both the U.S. and worldwide have an important role in shaping a country's financial system. Having an efficient banking system, whether through a central bank or the U.S. Federal Reserve, is critical for financial stability especially during times of recession or weathering downturns in the economy.
National banks may facilitate daily transactions with their local Federal Reserve Bank (also called a Fed), such as Fed bank wires. National banks must generate call reports to the Fed each quarter and ensure these reports are made public. As mentioned above, national banks in the United States are typically commercial banks, the largest of which include Chase Bank, Bank of America, Wells Fargo, Citibank. U.S. Bank, PNC Bank, Capital One, and others.
History of the First U.S. National Bank
Alexander Hamilton, the first Secretary of the Treasury, was instrumental in the formation of the first national bank in the United States. Located in Philadelphia, Pennsylvania within Independence National Historical Park, the structure was completed in 1797 and stands today as a National Historic Landmark. It was one of four major financial innovations at the time, including the U.S. government’s assumption of the state war debts, the establishment of a mint, and the imposition of a federal excise tax. Hamilton’s aim with these measures was to establish financial order, national credit, and resolve the issue of fiat currency.
Examples of National Banks Outside the United States
Two examples of national banks outside of the United States today include the National Australia Bank (NAB) and the Swiss National Bank.
NAB counts as one of the "big four" banks in Australia, including the Commonwealth Bank (CBA), Australia and New Zealand Banking Group (ANZ), and Westpac (WBC). National Australia Bank has over 1,500 branches, with major subsidiaries Clydesdale and Yorkshire banks in the United Kingdom.
Meanwhile, the Swiss National Bank is responsible for setting Switzerland's monetary policy and issuing Swiss franc banknotes. In this sense, the Swiss National Bank aims to ensure price stability and a steady supply of cash in Switzerland, allowing liquidity for the money market when needed.
FAQs
A national bank is a financial institution chartered and regulated by the federal government. In the context of US history, it refers to two banks established in the early 19th century, which were instrumental in managing the country's finances.
Why did Hamilton want a national bank? ›
After the Revolutionary War, the United States faced overwhelming debt and an uncertain commercial future. As a response, Secretary of the Treasury Alexander Hamilton stepped forward with a plan to establish a national bank, which would give the federal government more authority to handle the fiscal situation.
Why did Jefferson oppose a national bank? ›
Thomas Jefferson was afraid that a national bank would create a financial monopoly that might undermine state banks and adopt policies that favored financiers and merchants, who tended to be creditors, over plantation owners and family farmers, who tended to be debtors.
What did the Federalists believe about the national bank? ›
Anti- Federalists believed that a strong, central bank would only loan to the rich and powerful. Federalists and Anti-Federalist just didn't agree. Federalists, like Alexander Hamilton, believed that a strong, central bank was essential for the new nation. A strong, central bank could prevent abuses in banking.
Why did Andrew Jackson dislike the national bank? ›
Jackson's distrust of the Bank was also political, based on a belief that a federal institution such as the Bank trampled on states' rights. In addition, he felt that the Bank put too much power in the hands of too few private citizens -- power that could be used to the detriment of the government.
What were three results of the National Banking Acts of 1863 and 1864? ›
The Act had three primary purposes: (1) create a system of national banks, (2) to create a uniform national currency, and (3) to create an active secondary market for Treasury securities to help finance the Civil War (for the Union's side).
What did George Washington do with the national bank? ›
” Washington sided with Hamilton's argument and signed the Bank Bill into law on February 25, 1791. The debate over the National Bank ultimately fractured the government into the first political parties, the Democratic-Republicans led by Jefferson and Madison and the Federalist led by Hamilton.
How did the national bank favor the wealthy? ›
With its special powers and privileges, the U.S. bank would hinder the development of state banks. The bank would be of far more help to wealthy businessmen in cities than to farmers in the country. The bank would be run by wealthy stockholders and would help this privileged class become more rich and powerful.
Why did James Madison oppose the national bank? ›
James Madison opposed the national bank for several reasons. Firstly, he believed it was not within the powers granted to the federal government by the Constitution. Madison was a strict constructionist, meaning he believed the government should only have the powers explicitly listed in the Constitution.
How did Congress finally create a national bank? ›
In 1791, Congress passed a bill creating a national bank for a term of 20 years, leaving the question of the bank's constitutionality up to President Washington. The president reluctantly decided to sign the measure out of a conviction that a bank was necessary for the nation's financial well-being.
The creation of a national bank required an act of incorporation from Congress. Its critics, led by Virginia congressman James Madison, could legitimately object that Congress had no constitutional power to issue charters of incorporation.
Was the National Bank unconstitutional? ›
The Bank was unconstitutional, because Congress had no power to charter corporations and withdraw them from the regulatory and taxing power of the states. (This was the Jeffersonian position, which the Supreme Court under Chief Justice John Marshall had rejected in the landmark case of McCulloch v. Maryland in 1819.)
What did Alexander Hamilton say would be a benefit of creating a national bank? ›
The Bank would be able to lend the government money and safely hold its deposits, give Americans a uniform currency, and promote business and industry by extending credit. Together with Hamilton's other financial programs, it would help place the United States on an equal financial footing with the nations of Europe.
Why was the National Bank created? ›
President Lincoln recognized that unreliable paper money and inadequate credit was problematic. Along with his Treasury Secretary, Salmon P. Chase, he conceived the national banking system and the Office of the Comptroller of the Currency to regulate and supervise it.
Why were Democratic-Republicans against the National Bank? ›
The Democratic-Republicans argued that, even if a national bank would be of benefit to the country, nowhere in the Constitution does it specify that the federal government is allowed to be in the banking business. But the Constitution does say that any power not specified in the Constitution is delegated to the states.
What do you mean by Nationalised bank? ›
Definition. A nationalised bank refers to one which began initially as a private sector bank before being taken over by the government by some form of law for the welfare of the country. Public sector banks are the ones wherein the government owns the majority of the ownership.
What is the main objective of the national bank? ›
To ensure financial stability and supervise the financial system. Financial stability and sound financial institutions are essential to ensuring well-being.
Why did the Democratic Republicans not want a national bank? ›
The Democratic-Republicans argued that, even if a national bank would be of benefit to the country, nowhere in the Constitution does it specify that the federal government is allowed to be in the banking business. But the Constitution does say that any power not specified in the Constitution is delegated to the states.
What did First National Bank used to be called? ›
1864: First National Bank is founded in West Greenville, Pennsylvania, as The First National Bank of West Greenville. The Bank operates out of the house of the first Bank President Samuel P. Johnston.
