Traditional banks are classified as either "national" or "state" depending on the level of government that does the chartering. National banks are chartered by the Comptroller of the Currency at the federal level. State banks are charted by one of the fifty state corporation commissions. All traditional banks are subject to regulations by the Federal Reserve System and the Federal Deposit Insurance Corporation.

If an aspiring banking entrepreneur, such as Duncan Thurly, aspires to start a "bank," then a traditional bank is bound to be at the top of the list. A traditional bank would allow Duncan to provide any and all banking services that he might desire to offer--checking accounts, savings accounts, car loans, free popcorn, and little league sponsorship. It would allow Duncan to construction a fancy building with marble pillars outside and a big vault inside.

THE Original Banks

If Duncan Thurly had sought to establish a bank throughout most of the history of the U.S. economy, from the 1790s to the 1970s, then he invariably would have started a traditional bank.

Regulated Checking Accounts

The good news for banking customers is that aspiring banking entrepreneurs must abide by a host of stringent regulations. While Duncan Thurly might be able to start up a lawn care business will little effort, he cannot launch a traditional bank quite as easily. This provides the banking public with some degree of assurance that the bank is prudently managed and that their deposits are moderately safe. It also helps to keep the medium of exchange sound and avoid problems of inflation and unemployment that might occur otherwise.

State and National

• National banks, which are often the biggest ones, are chartered by the Comptroller of the Currency and subject to regulations by the Federal Reserve System, the Federal Deposit Insurance Corporation, and a host of other government entities.


• State banks, which tend to be smaller, are chartered and regulated by state government agencies. However, they are also subject to regulations by the Federal Reserve System and the Federal Deposit Insurance Corporation.

Seven of the ten largest banks and twelve of the twenty largest banks in the United States are national banks. And while eight of the twenty largest banks are state chartered banks, only one is not a member of the Federal Reserve System.

Thrift Institutions

Should Duncan Thurly not wish to operate a traditional bank, he could enter the banking industry through one of these three thrift institutions.

• Savings and Loan Associations: Savings and loan associations (S&Ls) are depository financial institutions that were originally established to assist home owners with low-cost mortgage loans. The funds for these loans were obtained by offering simple savings deposits. S&Ls were an outgrowth of the exploding housing needs of the middle class in the mid-1900s.


• Credit Unions: Credit unions are non-profit depository financial institutions that were established to provide members of a specific group, such as employees of a company, with low-cost personal loans. Credit unions were founded, often by labor unions, over concerns that traditional banks were not providing adequate services to working class consumer, especially personal loans.


• Mutual Savings Banks: Mutual savings banks are something of a cross between credit unions and savings and loan associations. They are nonprofit, like credit unions, but originally specialized in mortgage loans, like savings and loan associations. Mutual savings banks were created for reasons similar to that of credit unions--concern that traditional banks were not providing adequate services at reasonable prices.