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.
Breaking down the Concept of 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.
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 agencies or federal-oversight regulations, respectively.
Supervising entities, which oversee U.S. chartered banks, with physical locations, including the jurisdiction of a deputy comptroller, based in Washington, D.C.; along with another, large bank supervision department, also based out of Washington, D.C. These are some advantages to obtaining a state charter; for example, obtaining this charter could be less expensive than a federal charter. At the same time, state-chartered institutions often have the same rights as federally-chartered banks with less federal oversight.
Chartered banks originated in 1863, signed into law by President Abraham Lincoln and Treasury Secretary Salmon P. Chase.
Chartered Banks and 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 2016).
Examples of online banks include Axos Bank, Ally Bank, EverBank, Discover Bank, and Charles Schwab Bank. As online banks can cut costs via a largely digital footprint, many can offer above-average deposit rates and high-quality digital offerings to customers.