Dual Banking System

In the U.S., we have a dual banking system. There are state banks—which are chartered and regulated under state laws—and there are national banks—which are chartered and regulated under federal laws. FYI—a chartered bank is just a bank whose main job is to take deposits, keep ‘em safe, and also be a lender.

Simple enough, eh? Dual: state banks and federal banks.

Why do we have a dual banking system? In short...Lincoln. Yes, Abe, our man. To raise more money during the American Civil War, the federal government created national banks to compete against the already existing state banks. And let us tell you, it worked.

Today, economists like to say that the dual banking system is a good thing for other reasons. For instance, national banks can offer things smaller state banks can’t. On the flip side, state banks can be more responsive and flexible to their customers in their states than a "big-box" national bank.

As the commercial sings, "The more banks compete against each other, the more you, the consumer, win." Thanks, Abe.