March 1, 2024 

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SAVING FUNCTION: The positive relation between household saving and household disposable income. The saving function is commonly presented as the saving line or propensity-to-saving line. The slope of this line is the marginal propensity to save, which is the proportion of any additional income used for saving. The saving function and the marginal propensity to saving play key roles in the multiplier and accelerator concepts. Because consumption is the difference between disposable income and saving, the consumption function is a complementary relation to the saving function.

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Traditional banks that are chartered by the Comptroller of the Currency and are automatically members of the Federal Reserve System. The contrast to national banks are state banks, which are chartered by one of the fifty states. National banks tend to larger than state banks and whether justified or not tend to be slightly more prestigious. In the modern economy this distinction is less important than it was a few decades bank when state banks were subject to lesser state regulations than national banks.
National banks are traditional banks that are charted at the "national" level by the Comptroller of the Currency. In decades past, national banks were the "big boys" in the banking industry. They were the "movers and shakers." They were THE key commercial banks that played a big role the Federal Reserve System. Some national banks truly had a "national" reach, while others were national only in name, offering their banking wares to local communities. But even then they tended to be the larger banks in a city.

In modern times the relevance of national bank designation is not quite as in once was. True that four of the five largest U.S. banks and seven of the ten largest banks are national banks. However, of some note, one of the five largest and three of the ten largest are NOT national banks. Big banking is no longer the exclusive domain of national banks.

The Comptroller

National banks are so designated because they are chartered by the Comptroller of the Currency. Contrary to what the name implies, the Comptroller of the Currency has almost nothing to do with currency. Rather it is an office of the U.S. Treasury Department that is responsible for chartering and regulating national banks. It thus has "national" oversight of bank establishment, regardless of state location. Anyone seeking to establish a bank with the word "national" in the title, must gain permission from the Comptroller of the Currency.

Although the term "currency" appears in the title, the Comptroller of the Currency is primarily a bank regulator and has almost nothing to do with the nation's "currency." The "currency" term is something of a holdover from the early days of the United States when this office actually did deal with the nation's currency. But such duties have long since been taken over by the Federal Reserve System.

The Fed

National banks are automatically members of the Federal Reserve System (the Fed). The Fed is the economy's central banking authority that undertakes a great deal of bank regulation as well as setting the course of monetary policy.

The Fed contains of a number of different parts or components. The key ones are:

  • Board of Governors: At the top of the Fed is the Board of Governors, seven members led by a Chairman, which establishes rules, regulations, procedures, and policies of the Fed.

  • Federal Reserve Banks: Policies and regulations are carried out by Federal Reserve Banks dispersed throughout the economy. The primary work is undertaken by 12 Federal Reserve District Banks, with support provided by 25 Federal Reserve Branch Banks. These 37 Federal Reserve Banks interface and work directly with commercial banks.

  • Federal Open Market Committee: The key policy-making arm of the Fed is the Federal Open Market Committee. It includes the seven members making up the Board of Governors plus five Presidents of Federal Reserve Banks. The primary task of the Federal Open Market Committee is to set the course of monetary policy and to control the amount of money in circulation.
As the central bank for the U.S. economy, the Fed, among other things, provides banking services to commercial banks. If a regular, human being consumer, like Duncan Thurly seeks banking services, then he can amble down to his local branch of OmniBank. This commercial bank is in the business of providing banking services to people like Duncan. He can have checking or savings accounts with OmniBank, obtain an OmniBank credit card, and finance an automobile or home purchase with an OmniBank loan.

If OmniBank is in need of similar banking services, which many banks are, then it can turn to its local Federal Reserve District or Branch Bank. If OmniBank seeks a short-term loan or wants a place to store reserves, then it can turn to its nearby Federal Reserve Bank. While the Federal Reserve System provides a few services to the public (such as buying U.S. Treasury securities), its primarily functions are directed to commercial banks. The Fed is the bank for banks.

Every national bank, once chartered by the Comptroller of the Currency, is automatically a member of the Federal Reserve System. It has no choice. As a member, though, it has access to Fed services, such as loans and check processing services, that are either not available or available at higher cost to nonmember banks.

The State Bank Alternative

The alternative to national bank chartering by the Comptroller of the Currency is to be chartered by one of the fifty state governments. This state chartering is handled much the establishment of other corporations, though the state Corporation Commission or Secretary of State. State chartered banks are not automatically members of the Federal Reserve System, but can choose whether or not to join.

While state banks tend to be smaller than national banks and the largest state banks are usually members of the Federal Reserve System, such is not always the case. Three of the ten largest banks in the United States are state banks. Moreover, five of the fifth largest banks are state banks that are not members of the Federal Reserve System.

In the past, banks choose state a charter over a federal charter and choose not to join the Fed because regulations were usually much less for nonmember state banks. While this remains true to some degree in modern times, changes in banking regulations have significantly lessened the distinction.


Recommended Citation:

NATIONAL BANKS, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2024. [Accessed: March 1, 2024].

Check Out These Related Terms...

     | banking | state banks | fractional-reserve banking | bank reserves | traditional banks | savings and loan associations | credit unions | mutual savings banks | thrift institutions |

Or For A Little Background...

     | money | M1 | profit | industry | monetary economics | government functions | financial markets | liquidity |

And For Further Study...

     | money creation | Comptroller of the Currency | Federal Reserve System | Federal Deposit Insurance Corporation | central bank | monetary policy | bank panic | monetary aggregates | barter | goldsmith banking |

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     | Federal Reserve System | Comptroller of the Currency |

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