national bank

national bank

In the U.S., any commercial bank chartered and supervised by the federal government and operated by private individuals. National banks were created during the Civil War under the National Bank Act of 1863 to combat financial instability caused by state banks and to help finance the war effort. When these banks purchased federal bonds and deposited them with the comptroller of the currency, they were permitted to circulate national bank notes, thereby creating a stable, uniform national currency. After the Civil War, the government began to retire the bonds issued during the war, which reduced the number of national bank notes that could be issued. Concern over the inflexibility of national bank notes led to the formation of the Federal Reserve System in 1913, which all national banks were required to join. The U.S. Treasury assumed the obligation of issuing national bank notes in 1935, effectively ending the issue of money by private commercial banks.

This entry comes from Encyclopædia Britannica Concise.
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