What Does a National Bank Do? Services & Regulations
Understand the core functions and federal oversight that define national banks, key players in facilitating economic activity and financial security.
Banks are foundational institutions within the financial system, connecting those with surplus funds to those who need capital. They facilitate the flow of money, enabling commerce and individual transactions, and support economic growth and stability.
Understanding National Banks
In the United States, a national bank is a commercial bank chartered by the federal government, specifically the Office of the Comptroller of the Currency (OCC). This federal charter allows national banks to operate across state lines, distinguishing them from state-chartered banks. National banks are primarily subject to federal laws and regulations. They are required members of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). The inclusion of “National Association” or “N.A.” in a bank’s legal title indicates its status.
Everyday Financial Services
National banks offer a range of fundamental financial services for daily financial management.
Deposit Accounts
Deposit accounts include checking accounts for frequent transactions, savings accounts for accumulating funds, and money market accounts, which often provide higher interest rates. Certificates of deposit (CDs) allow customers to deposit a fixed sum for a set period, earning a fixed interest rate.
Lending
Lending is a core service, facilitating borrowing for various purposes. Individuals can obtain mortgages, personal loans, and auto loans. Businesses can access small business loans or lines of credit to manage operations, expand, or invest in new ventures.
Payment Processing
Payment processing services allow for the secure movement of money. Banks issue debit and credit cards, and offer online bill pay. Wire transfers provide a method for sending funds quickly between bank accounts, while Automated Clearing House (ACH) transactions facilitate electronic funds transfers for direct deposits and automatic bill payments.
Broader Financial Offerings
Beyond routine services, national banks offer specialized financial offerings.
Investment Services
Investment services include brokerage accounts for trading stocks and bonds, and access to mutual funds. Many national banks also offer retirement planning services, assisting clients with individual retirement accounts (IRAs) and 401(k) plans, alongside wealth management and financial advisory services.
Trust and Estate Services
National banks provide trust and estate services, acting as a trustee to manage assets on behalf of beneficiaries. This can involve administering trusts, acting as an executor of an estate, or providing guardianship services. These offerings help ensure assets are managed and distributed according to the client’s wishes.
Commercial Banking Services
For larger businesses, commercial banking services address intricate financial requirements. These include treasury management solutions, which optimize cash flow, and trade finance, which facilitates international commerce through letters of credit. National banks also engage in syndicated loans for large projects, and offer corporate finance advisory services for mergers, acquisitions, and capital structuring. International banking services support global operations, encompassing foreign exchange transactions, international wire transfers, and letters of credit for cross-border trade.
Federal Regulatory Oversight
National banks operate under a comprehensive framework of federal regulatory oversight to ensure stability, protect consumers, and maintain public confidence.
Office of the Comptroller of the Currency (OCC)
The Office of the Comptroller of the Currency (OCC) is the primary federal regulator for national banks. It charters, supervises, and regulates these institutions, ensuring they operate safely, provide fair access to financial services, and comply with laws. The OCC conducts examinations and can impose corrective measures for non-compliance.
Federal Reserve System
The Federal Reserve System (Fed) oversees national banks, as they are required members. The Fed conducts monetary policy, maintains financial stability, and supervises bank holding companies. Federal Reserve Banks provide financial services to depository institutions, including check processing and distributing currency.
Federal Deposit Insurance Corporation (FDIC)
The Federal Deposit Insurance Corporation (FDIC) insures deposits and maintains public confidence. The FDIC insures eligible customer deposits up to $250,000 per depositor, per insured bank, for each account ownership category. This insurance protects depositors if a bank fails and is funded by premiums paid by banks. The FDIC also supervises banks for safety and soundness and can act as a receiver for failed institutions.
Consumer Financial Protection Bureau (CFPB)
The Consumer Financial Protection Bureau (CFPB) focuses on consumer protection within the financial sector. It has jurisdiction over banks, including national banks with assets over $10 billion, to ensure compliance with federal consumer financial laws. The CFPB promotes fairness and transparency in financial products and services, addresses consumer complaints, and educates consumers.