What Is a State Bank?
A state bank is a financial institution that a state has chartered primarily to provide commercial banking services. A state bank is not the same as a central or reserve bank; these institutions are primarily concerned with influencing a government's monetary policy.
Key Takeaways
- State banks are financial institutions chartered by a state to provide commercial banking services.
- Unlike the Federal Reserve, they are not responsible for monetary policy and are restricted to providing banking and, in some cases, wealth management and insurance services.
- State banks can still be large financial institutions; however, they are not permitted to expand nationwide since they do not have a federal charter.
Understanding State Banks
State banks were championed by economists, such as Arthur Lewis and Gunnar Myrdal, who were proponents of greater participation by the public sector in financial markets. Their argument was that government role smoothed out the imperfections and crises that the financial markets were prone to. As a result, state banks dominated Western economies up until the 1970s.
The emergence of neoliberal economists and policy makers led to a rethinking of the state's role in an economy in the 1980s. Several state banks were privatized, leading to a reduction in their market share. In some regions of the world, such as Eastern Europe and South Asia, state banks are still among the biggest government institutions. For example, the State Bank of India is the biggest bank in India and is ranked 236th in the world's 500 biggest organizations.
In the United States, the Office of the Comptroller of the Currency (OCC) does not regulate state banks. The OCC is a federal agency thatoversees banks operating nationally. The Federal Reserve (the Fed) does regulate some state banks, along with those that are not under the jurisdiction of the Federal Deposit Insurance Corporation (FDIC).
State banks can still be large financial institutions; however, they are not permitted to expand nationwide since they do not have a federal charter. State banks may be able to provide more nationwide services, such as automated teller machines (ATMs), by partnering with banks that have a broader presence around the country. In certain states, state banks have more authority than national banks in providing insurance solutions and private banking services.
State Bank Services: Commercial, Insurance, and Private Banking Offerings
Most state banks focus on personal banking services. These generally include accepting deposits, offering checking accounts, as well as business, personal, and mortgage loans. Additionally, many state banks will provide basic financial products (e.g. certificates of deposit (CDs)) and savings accounts to individuals and small businesses.
The Jonesburg State Bank in Jonesburg, MO, for example, highlights these services above, along with mobile banking options for its retail and business customers.
Some state banks will also provide some insurance solutions. Common personal insurance policies include auto, health, homeowners, and life insurance contracts. Special business insurance policies may protect against specific damages or injuries to employees, medical malpractice, and professional liability insurance, among others.
State banks also expand into private banking and wealth management services. The Iowa State Bank, for example, offers individuals tailored financial plans, along withfee-based management services, business retirement plans, and IRAs and retirement planning, in addition to several insurance options. The team is headed by two financial advisors.
For wealthier individuals, private banking options can be extensive. In addition to more exclusive advice, services can cover protecting and growing assets, more specialized financing solutions, and passing wealth on to future generations. High levels of assets allow some individuals to participate in alternative investments, such as hedge funds and real estate. UBS, Merrill Lynch, Morgan Stanley, and Credit Suisse are examples of private banks.
FAQs
A bank is a financial institution that is licensed to accept checking and savings deposits and make loans. Banks also provide related services such as individual retirement accounts (IRAs), certificates of deposit (CDs), currency exchange, and safe deposit boxes.
How does state banking work? ›
State banks are financial institutions chartered by a state to provide commercial banking services. Unlike the Federal Reserve, they are not responsible for monetary policy and are restricted to providing banking and, in some cases, wealth management and insurance services.
What are the 3 basic services that banks provide briefly? ›
Three services that banks provide are storing money, saving money, and providing loans. Banks provide a safe, convenient place for people to store money with protection against robbery and FDIC insurance to protect people from losing their money if the bank is unable to repay loans.
How do banking services work? ›
How does the banking industry work? The banking industry offers consumers a safe way to store their money and potentially earn interest on their funds. When customers deposit money in checking or savings accounts, banks can use these funds to make loans and charge interest, thus making a profit.
What is a bank answer in one sentence? ›
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans.
What is bank one word answer? ›
bank, an institution that deals in money and its substitutes and provides other money-related services. In its role as a financial intermediary, a bank accepts deposits and makes loans.
What is the role of the state bank? ›
One of the fundamental responsibilities of the State Bank is regulation and supervision of the financial system to ensure its soundness and stability as well as to protect the interests of depositors.
What is the disadvantage of state bank? ›
One of the major drawbacks of government ownership in any sector, including the banking industry, is the potential for a lack of efficiency. Government-owned entities often suffer from bureaucratic processes, slow decision-making, and a lack of accountability.
What's the difference between a state bank and a regular bank? ›
The main difference is whether the permit to do business as a bank was granted by the state government or the federal government. Whenever a new bank organization is started, the owners apply for either a state or national (federal) bank charter.
What are the 5 most important banking services? ›
The 5 most important banking services are checking and savings accounts, loan and mortgage services, wealth management, providing Credit and Debit Cards, Overdraft services. You can read about the Types of Banks in India – Category and Functions of Banks in India in the given link.
The basic banking service is a current account with a debit card, allowing you to carry out the following transactions: deposit cash. withdraw cash. transfer money into an account. carry out standing orders.
How does bank work work? ›
Although banks do many things, their primary role is to take in funds—called deposits—from those with money, pool them, and lend them to those who need funds. Banks are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money).
What is banking as a service in simple terms? ›
BaaS providers normally work directly with banks to provide the underlying service, and platforms can then use BaaS APIs to enable customers to hold funds, pay bills, manage cash flow, and access funding by working directly with the platform they've come to know and trust.
What is the banking process as a service? ›
Banking as a Service Definition
Banking as a Service (BaaS) allows non-banks (like the ticketing platform in our example above) to integrate with banks. Through this, they can offer digital banking services to their customers.
What is the function of bank answer? ›
The function of a Bank is to collect deposits from the public and lend those deposits for the development of Agriculture, Industry, Trade and Commerce. Bank pays interest at lower rates to the depositors and receives interests on loans and advances from them at higher rates.
What is bank account answer? ›
A bank account is a place for you to deposit and withdraw funds. Beyond the ability to store and access money, bank accounts may offer a number of other features: A debit card.
What are the advantages of bank answer? ›
Bank accounts are cheaper
You can deposit and cash your checks at the institution where you have a bank account for free. Paying bills: Without a bank account, you probably rely on check cashing outlets, telephone bill pay or money orders—all of which have attached fees—to pay your bills.
Who is a banker answer? ›
Types of Job Roles:
A banker is a person who works in a financial institution. There are numerous work opportunities for bankers. One can make a decision based on their knowledge and job interests.
