The Myth of Competition in the Dual Banking System

Abstract

The American banking system operates under a dual state and federal system of chartering and safety and soundness regulation. The dual banking system ostensibly allows banks operating in any state to choose between two different sets of primary laws to define their powers and to regulate their activities and investments. Banks may obtain a national charter and fall under the regulatory aegis of the Comptroller of the Currency, or they may obtain a state charter from the chartering state's primary banking regulator and fall under its regulatory aegis. In addition, within this system state banks can further decide whether to subject themselves to federal regulation by becoming members of the Federal Reserve System (Fed) or by insuring deposits through the Federal Deposit Insurance Corporation (FDIC).