National Banks

a type of private commercial banks in the USA; they are regulated by federal legislation and supervised by the controller of the currency, who reports in turn to the secretary of the treasury.

The national banking system was established by the National Banking Act of Feb. 25, 1863, to strengthen the credit system while meeting the government’s own financial needs through the mechanism of currency issue. To increase the stability of the banking system, national banks were obliged to maintain cash deposits in the federal treasury equal to 25 percent of total deposits for the larger city banks and 15 percent for country banks. Additionally, each bank had to purchase from the treasury and deposit with the controller of the currency federal bonds in an amount equal to one-third of the bank’s paid capital. In return, every national bank had the right to issue bank notes in an amount equal to 90 percent of the market value of the federal bonds it had bought; 25 percent of the value of these bank notes was guaranteed by the government.

When the Federal Reserve System was established in 1913, the national banks’ issue of bank notes accounted for one-fifth of all the cash in circulation in the country, or $715 million. After 1913 the currency issue functions of the national banks were drastically curtailed, and after 1935 all bank notes issued by national banks were gradually withdrawn from circulation. Yet the national banking system remains an important element in the credit system of the USA. The biggest, such as the First National City Bank of New York and the First National Bank of Chicago, are full-service commercial banks; they accept deposits, extend credit, and deal in major foreign currencies. By the middle of 1972 the more than 4,500 national banks constituted 33.2 percent of the total number of commercial banks in the USA and accounted for 58.3 percent of all bank deposits ($322.3 billion), 57.2 percent of total bank capital ($28.7 billion), and 59.3 percent of all loan operations ($220.1 billion).