The United States banking system differs from other industrialized countries. For instance, the United States has more banks per capita, and the banks possess fewer assets because the U.S. government imposed strict regulations. Early in the United States history, the public and government feared big banks, so state and federal governments passed regulations that forced banks to be smaller and encouraged a large number of banks to form. The United States, furthermore, has a dual banking system.
A bank chooses a charter from a state government or from the U.S. federal government. A charter is a document that legally establishes a corporation and allows a financial institution to participate in banking activities. A national bank receives a charter from the federal government, while a state bank receives a charter from a state government. A state-chartered bank could have fewer regulations. A state government agency regulates its state banks, and many states require their banks to join the Fed and/or FDIC.
Therefore, a state bank could have one or more regulatory agencies to deal with. U.S. government imposed another restriction upon the U.S. banking industry – the McFadden Act. The McFadden Act prohibited a commercial bank from opening a branch in another state. This law put national and state banks on equal footing and helped foster competition.
However, this law kept small inefficient banks in business, causing the United States to have the largest number of banks in the world. The United States had 14,217 banks in 1986, which fell to 9,459 banks by 2010. Some states imposed more restrictions upon their banks than other states. For example, some states had imposed unit banking that restricted a bank to one geographic location.
Unit banking restricts a bank to a single geographical location, such as in one city, and the bank cannot branch to other cities. Currently, no states enforce unit banking. Furthermore, branch banking allows a bank to have two or more banking offices owned by a single banking corporation within a geographical area. Geographic area can be a city, county, or statewide. Currently, 45 states allow statewide branch banking.
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