In modern times the difference between state and national banks is not quite as in once was. While state banks do tend to be smaller, they can also be major players in the baking industry. In fact, one of the five largest banks in the United States and three of the ten largest banks are state banks.

State Chartering

While state banking regulations tend to be less than federal regulations, the rules for starting up a state bank are still relatively restrictive. Anyone with a dream and a few dollars of extra cash can start a retail store, business consulting firm, or manufacturing company. Aspiring bankers, in contrast, must jump through a few more hoops, such as verifying that they have sufficient up front investment and that the banking market has need for another bank.

The Fed

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.

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.

State banks, if they choose, can become members of the Federal Reserve System. As a member 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 National Bank Alternative

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.