What Is a Chartered Bank?

A chartered bank is a financial institution whose primary roles are to accept and safeguard monetary deposits from individuals and organizations, as well as to lend money out. Chartered bank specifics vary from country to country. However, in general, a chartered bank in operation has obtained a form of government permission to do business in the financial services industry. A chartered bank is often associated with a commercial bank.

Key Takeaways

  • A chartered bank is a financial institution engaged in the business of providing monetary transactions, such as safeguarding deposits and making loans.
  • Most chartered banks have received their government's permission to operate in the financial services industry.
  • In the United States, the Office of the Comptroller of the Currency (OCC) is responsible for overseeing chartered banks, federal savings associations, and federal branches and agencies of foreign banks.
  • The OCC has the power to grant or deny applications for new charters for national banks and federal savings associations.

Understanding a Chartered Bank

Chartered banks provide core financial intermediary services necessary in today's economy. Individuals can easily deposit their funds into various types of accounts within a chartered bank, earning interest on their temporary savings. Chartered banks maintain a float of currency so they can process customers' daily transactions, but they lend out the majority of their deposits to individuals and commercial borrowers to stimulate economic growth.

Chartered Bank Oversight

A bank’s actual charter lays out operational guidelines for the bank, along with how it will comply with relevant regulations. This might include how the bank will maintain a certain minimum capital requirement. In the United States, a charter can be either state or federally issued and conform to either state agency regulations or federal-oversight regulations, respectively.

The Office of the Comptroller of the Currency (OCC) was created by Congress in 1863 as part of the National Currency Act. The OCC oversees all federal savings associations and national banks, along with all federal branches and agencies of foreign banks. The OCC is an independent bureau within the U.S. Department of the Treasury and is responsible for approving or denying applications for new charters for national banks and federal savings associations.

Examiners from the OCC conduct on-site reviews of banks to ensure the institutions operate in a safe and sound manner. The OCC is responsible for identifying risks to the banking structure and can take actions against chartered banks for noncompliance, including issuing cease and desist orders and imposing penalties. As of 2019, the OCC supervised 1,207 chartered banks, federal savings associations, and federal branches and agencies of foreign banks.

$12.8 trillion

The total value of bank assets held by OCC-regulated institutions, which comprise 69% of all commercial banking assets in the United States.

Chartered Banks vs. Online Banks

Certain online banks may contain overseas charters; these do not conform to either state or federal regulations. In these cases, the consumer must determine if the online bank might offer Federal Deposit Insurance Corporation (FDIC) protection. The FDIC, created in 1933 to maintain public confidence and mitigate bank failure in the United States, insures deposits of up to $250,000 per member institution (as of 2020).

Examples of online banks include Axos Bank, Ally Bank, TIAA Bank, Discover Bank, and Charles Schwab Bank. As online banks can cut costs via a primarily digital footprint, many can offer above-average deposit rates and high-quality digital offerings to customers.