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.