THE BANKING SYSTEM OF THE UNITED STATES

 In the US, the principal financial institutions are:

- commercial banks (domestic and foreign);

- thrift institutions that include savings and loan associations (S&Ls), mutual savings banks and credit unions;

- insurance companies;

- private and government pension funds;

- commercial / consumer finance companies;

- mutual funds.

Among financial institutions, banks and thrifts are known as depository institutions. The firms that are not in this category are called nondepository (or nonbank) institutions. All financial institutions perform some of the related functions but only commercial banks perform all of them and are the most responsible for the evolution of each function. This is one of the reasons the banking system is the most important sector of any financial system.

With nearly 90,000 branches and 371,000 automated teller machines (ATMs), US banking system is the largest in the world. As of September 30th 2004, US banks had US$9.88 trn in assets and US$5.98 trn in total loans. US banking is more diverse than in most Western countries. Despite ongoing consolidation, vigorous competition exists within the vast banking community, which includes financial holding companies that operate nationwide, dominant regional banks and smaller independents. Large foreign banks also continue to expand in the US market.

The unique aspect of the US banking industry is its so-called dual banking system. It means that there are two parallel regulatory structures in chartering, supervising, and examining banks in the United States. One side of the regulatory structure consists of the state regulatory agencies and their regulatory systems and the other side consists of the federal agencies: the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC). Therefore, in the United States there is a certain amount of competition between the state and federal regulatory agencies.

The Federal Reserve System is the central bank of the United States. A network of twelve Federal Reserve Banks and their branches (twenty-five as of 2004) carries out a variety of system functions, including operating a nationwide payments system, distributing the nation’s currency and coin, supervising and regulating member banks and bank holding companies, and serving as banker for the US Treasury. The twelve Reserve Banks are each responsible for a particular geographic area or district of the United States. Each Reserve District is identified by a number and a letter. Besides carrying out functions for the system as a whole, such as administering nationwide banking and credit policies, each Reserve Bank acts as a depository for the banks in its own District and fulfills other District responsibilities.

The nation’s commercial banks can be divided into three types according to which governmental body charters them and whether or not they are members of the Federal Reserve System. Those chartered by the federal government are national banks; by law, they are members of the Federal Reserve System. Banks chartered by the states are divided into those that are members of the Federal Reserve System (state member banks) and those that are not (state non-member banks). State banks are not required to join the Federal Reserve System, but they may elect to become members if they meet the standards set by the Board of Governors. As of March 2004, of the nation’s approximately 7,700 commercial banks nearly 2,900 were members of the Federal Reserve System - approximately 2,000 national banks and 900 state banks.

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the federal government of the United States created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. (In 2008, due to the financial crisis, and to encourage businesses and high-net-worth individuals to keep their cash in the largest banks, Congress temporarily increased the insurance limit from $100,000 to $250,000. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor.) Since 1989 all commercial banks that accept deposits are required to obtain FDIC insurance. Banks that are in danger of failing are either taken over by the Federal Deposit Insurance Corporation, administered temporarily and eventually sold off or merged with other banks. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.