My local bank recently changed its name from Elsewhere National Bank to Elsewhere State Bank. Apparently, they decided to move their charter from the feds to the state (Colorado). I know “National” banks are chartered by the federal government and “State” banks by a state government (and the FDIC, according to Wikipedia), but I don’t really know what that means, or what would make a bank choose one over the other. More to the point, why would an already existing bank switch? Is something shady going on? Is Colorado the new Switzerland?
If a bank has no desire to expand outside of whatever state it’s in, there’s not much reason to have a national charter. Aside, perhaps, from the ability to have that FDIC logo.
Generally, state charters result in lower costs for the bank. The various state agencies that charter banks also tout their accessibility and knowledge of local laws and residents’ desires.
Banks switch their charter simply because they want to do something that the new charter will allow them to do; differences in fees may also be a factor. It’s nothing particularly shady.
The state chartered bank is regulated by the state banking department and the FDIC rather than the national banks which are regulated by the Office of the Comptroller of the Currency and Bank Holding companies which are regulated by the Fed.
The difference is in the level of regulation and the cost of regulation. State banking departments are likely to be cheaper. The state may allow certain types of activities that the OCC may not. Its hard to say why they changed. Obviously something in Colorado banking laws appeals to them. It could be that they want to get involved in some mining or oil and gas activity and they feel that the state regulators will be more lenient since they better understand the local market.
It doesn’t mean that the bank is less safe. It’s still FDIC insured.
The bank can still operate interstate as long as the state in which they are domiciled allows multi-state activities.
There is also a state chartered industrial loan corporation, but that wouldn’t be the case here.
Thanks guys! I didn’t really think anything shady was going on, I just wondered what was going on. So far the reasons for switching to a state charter include cheaper regulatory fees, better access to the regulatory beaurocracy, and possibly more leniancy in certain types of investments such as oil and gas from state regulators.
What would have been the benefits to getting a federal charter in the first place then, especially if state chartered banks can operate in mulitple states? (And this is truely a local bank. It has branches only in this town.)
I shouldn’t have said leniency. I should have said that a local regulator might have a better knowledge of activities the bank might engage in. So I used mining as an example for Colorado. Who knows, maybe banks own mineral or oil rights.
Hard to say why the bank had the Federal charter. Perception of safety?
A state charter MAY allow multi-state activities. I don’t know what you can do in Colorado. But a Federal charter allows easier branching. I think you can open a branch under the same terms in one state as you could in any other. A state charter may allow branching into other states, but still leave some regulatory hurdles.
So without knowing the bank and what its circumstances are, I have nothing but guesses to offer.