national bank

noun
Updated on: 13 Oct 2017

Definition of national bank

2 :a bank operating under federal charter and supervision

First Known Use of national bank

1736


Financial Definition of NATIONAL BANK

national bank

What It Is

A national bank is a bank that is a member of the Federal Reserve system and the Federal Deposit Insurance Corp.

In global terms, a national bank is a country's central bank. In this context, the Federal Reserve is the United States' national bank.

How It Works

For example, let's say Company XYZ is a bank. To become a national bank, it must receive a charter from the Comptroller of the Currency and pay premiums to the FDIC. In return, the bank can become a member of the Federal Reserve and thus borrow from the Federal Reserve when necessary (see our definition of Federal Reserve for more on how this works). The bank also receives FDIC coverage for its depositors, meaning that most depositors' money will be protected even if Company XYZ goes bankrupt.

The Federal Reserve is the bank for the U.S. Treasury. In this capacity, local Federal Reserve banks hold receipts and make payments on behalf of the Treasury. The Federal Reserve banks maintain Treasury fund accounts, clear checks drawn against the Treasury, and manage the physical issuance, servicing and redemption of Treasury securities and savings bonds.

Why It Matters

National banks have existed since the 1860s, when the U.S. implemented the National Bank Acts of 1863 and 1864. The U.S. didn't have a consistent national currency then, and the laws allowed chartered banks to issue their own bank notes that were backed by U.S. government bonds. (National bank notes don't exist anymore.)

National banks hold the vast majority of the country's deposits. Until 2004, they were almost never allowed to underwrite insurance or engage in merchant banking or real estate development.


Law Dictionary

national bank

legal Definition of national bank

see bank

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