Introduction to Finance

61
LEARNING ACTIVITY
Go to the Federal Reserve Board of Governors’ website, http://www.federalreserve.gov, 
and fi nd information on regulation and operations of the banking system.
3.6
Structure of Banks
Bank structure is characterized by how a bank is established, the extent to which branching 
takes place, and whether a holding company organizational structure is used. We will address 
each of these structural characteristics in terms of commercial banks, as well as comment on 
how the other three depository institutions are structured.
Bank Charters
To start and operate a bank or other depository institution, a charter must be obtained that 
spells out the powers of the institution. Commercial banks may obtain charters either from 
the federal government or from a state government, making the United States a 
dual bank-
ing system
. While there are many similarities between federal and state charters, federally 
chartered banks must include 
national
in their titles while state-chartered banks cannot use the 
word. Federally chartered banks also must be members of the Federal Reserve System and the 
Federal Deposit Insurance Corporation. State-chartered banks are not required to join either 
the Fed or the FDIC, although today almost all banks are covered by federal deposit insurance.
There are about 8,000 commercial banks insured by the FDIC. Roughly 30 percent of 
these banks hold national charters and 70 percent are state chartered. Less than 20 percent of 
the state banks are members of the Fed. For some time, concern was expressed that the Fed 
might not be able to administer monetary policy eff ectively if it could not regulate nonmember 
state banks. This concern disappeared at the beginning of the 1980s when reserve require-
ments set by the Fed for member banks were extended to state nonmember banks.
Savings and loan associations and credit unions also can obtain federal or state charters. 
Savings banks are state chartered. There are about 1,500 savings institutions that are FDIC-
insured. Approximately 60 percent of these savings institutions hold federal charters and 
40 percent have state charters. Credit unions are not insured by the FDIC. While S&Ls, credit 
unions, and savings banks are important components of the banking system, we will continue 
to focus on commercial banks because of their dominant role in the banking system.
Degree of Branch Banking
Commercial banks wanting to operate branches away from their home offi
ces are restricted by 
state laws as to the number of offi
ces they are permitted, as well as to where the offi
ces may 
be located. 
Unit banking
means that a bank can have only one full-service offi
ce. Back in the 
1960s, about one-third of the states were unit-banking states. Today there are no unit-banking 
states. Colorado was the last unit-banking state before it began permitting some form of lim-
ited branching in 1991.
In addition to unit banking, there is limited banking and statewide banking. States 
with