Dual Banking System

What Is a Dual Banking System?

A dual banking system is the type that exists in the United States, where state banks and national banks are chartered and regulated at various levels of government. Under the U.S. dual banking system, national banks are chartered and regulated under federal law and directed by federal agencies. State banks are chartered and regulated under state laws and directed by their separate states' banking departments. The dual system isn't completely obvious, be that as it may, with some state banks paying all due respects to regulators on the two levels.

History of the Dual Banking System

The dual banking system in the U.S. was brought into the world during the Civil War period. President Abraham Lincoln's Treasury secretary, Salmon P. Pursue, drove the work to make the National Bank Act of 1863, whose principal objective was to fund-raise for the North to overcome the South. This must be done through the issuance of a common currency at the national level. Up to that point, state banknotes were in circulation. The 1863 Act made competition to state banks, and the lawmakers went a step further the next year by passing an amendment to tax the issuance of state banknotes.

The number of state banks dropped dramatically, however a key innovation by state banks — demand deposits, which permitted depositors to pull out their money whenever — prompted a strong rebound in the number of state banks. In something like 10 years of the 1864 amendment to tax state banknotes, state banks asserted more customer deposits than national banks.

The law that sent off the modern dual banking system is generally viewed as the 1913 Federal Reserve Act, in which Congress made the Federal Reserve System to act as the central bank of the United States and guide the country's monetary policy.

The Dual Banking System Today

Today, each of the 50 states, plus the District of Columbia, have their own bank regulators.

National banks are regulated by the Federal Reserve System or the Office of the Comptroller of the Currency, contingent upon their structure. The Federal Reserve additionally has some regulatory authority over certain state-chartered banks, as does the Federal Deposit Insurance Corporation.

Furthermore, the Consumer Financial Protection Bureau (CFPB), made in 2010, directs both state and national banks with assets of $10 at least billion to guarantee their compliance with consumer laws.

Note

A dual banking system can mean various things in various countries. In a few Muslim countries, for instance, it alludes to a system with both Islamic and conventional banks.

Upsides and downsides of the Dual Banking System

The dual banking system takes into account the conjunction of two distinct regulatory structures for state and national banks. This converts into differences in how credit is regulated, including legal lending limits, as well as varieties in rules from one state to another. On the negative side, that adds a certain level of complexity for the two bankers and consumers that wouldn't be available in a single banking system.

Notwithstanding, the dual structure seems to have endured everyday hardship, and numerous financial experts keep up with that it empowers a sound and lively banking system. National banks can offer efficiencies that come from economies of scale and product and service innovations derived from the application of their greater resources.

State banks, then again, can be more agile and flexible in answering the unique necessities of customers in their own state or even town. Their innovations, when effective, can then be gotten by different states. Advocates of state chartering keep up with that state regulators better comprehend the networks they serve. As the Arkansas State Bank Department puts it, "As the primary regulator of a state bank, the Arkansas Bank Commissioner and State Bank Department are minimal in excess of a short drive or brief telephone call away from the banking institutions they direct."

The dual banking system additionally permits banks to pick how they wish to be chartered, and they can switch from national to state chartering, or vice versa, with government endorsement.

The Bottom Line

For historical reasons, the United States has a dual banking system wherein banks are chartered and regulated on either the state or federal level, and in some cases both. Defenders of the dual banking system keep up with that each type of bank, national or state, enjoys certain benefits and that the two complete one another and make a more essential and inventive banking system.

Features

• Advocates of the dual banking system keep up with that national banks benefit from their greater scale, while state banks can be more inventive and sensitive to the requirements of their networks, and that the two types complete one another.
• The United States has a dual banking system, with national banks regulated on the federal level and state banks regulated by each state.
• There is some overlap between the two systems, with certain state banks subject to regulation on the two levels.

FAQ

What Is the Dual Banking System in the United States?

In the United States, dual banking alludes to a system where banks can be chartered (or licensed) on either the national or state level. Banks are subject to various arrangements of laws and managed by various regulatory agencies relying upon which they pick.

How You Tell in the event that a Bank Has a State or Federal Charter?

A national bank will have "National" in its name or the initials "N.A." after it.

Who Charters and Regulates Credit Unions?

Like banks, credit unions can be chartered and regulated on either the state or federal level. The National Credit Union Administration (NCUA) directs and protects federal credit unions and safeguards participating state-chartered ones, similar as the Federal Deposit Insurance Corporation (FDIC) guarantees participating banks of the two types.

Who Charters and Regulates Savings and Loans?

Savings and loans, otherwise called S&Ls or frugalities, can likewise be chartered and regulated on either the state or federal level. The Office of the Comptroller of the Currency is the primary regulator of federally chartered savings and loans, while the Federal Deposit Insurance Corporation (FDIC) controls state-chartered savings and loans, in a joint effort with heir particular states.