The Difference Between a Chartered Bank & a Commercial Bank

A commercial bank is a financial institution that accepts deposits, issues loans and offers various financial products like checking and savings accounts as well as certificates of deposit (CD). Such financial institutions are in the business to make profits, usually by issuing loans and charging interest. They can serve the interest of individuals, small businesses and large financial firms.

On the other hand, a chartered bank is any bank that offers relevant financial services and is governed by a charter, which vests them with the power to accept people’s monies and assets and loan them out to other customers. Chartered banks are subject to the government authority that issues them the charter. They must abide by the specified regulations which set out rules that guide how they conduct themselves.

Many commercial banks are usually chartered, thus making them forms of chartered banks. However, not all chartered banks are commercial banks. Some banks are credit unions, savings banks, or savings and loans banks.

Banks can be chartered at either the federal or state level.

​Federal Charters:​ Federal charters are usually issued by the Office of the Comptroller of the Currency (OCC) to national banks or federal savings associations that want to operate at the national level.

The OCC is an independent branch of the U.S. Department of Treasury and one of the major federal financial regulatory agencies. The other agencies include the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve System (FRS), among others.

A federally chartered bank is therefore regulated and supervised by the OCC and must adhere to its banking guidelines. You can find a list of federally chartered credit unions and banks online in various sites, such as the OCC website.

​State Charters:​ On the other hand, a state-chartered bank is one that has obtained a charter from financial state regulatory agencies. The licensing enables them to operate at the state level.

Generally, state charters vary from one state to another. Also, the regulatory agencies in charge may have different names and varying regulations. However, most state-chartered banks are usually under the direct supervision of the Federal Reserve System. Those that are not will be subject to FDIC supervision.

It is worth noting that state regulatory agencies not only issue charters but also enforce banking regulations, conduct bank examinations, and decide on branch and merger bank applications. If a bank does not adhere to the charter regulations, it may face sanctions or may have its charter revoked altogether.

These are the basic requirements for a bank to receive a charter:

• The bank organizers must provide extensive information about their proposed business, including their business plan, senior management, capital adequacy and risk management infrastructure, among others.
• They must wait for the regulatory authority to determine whether the bank will operate in a safe and sound manner and if it has a reasonable chance for success.
• They must obtain approval from the FDIC. The regulation agency is responsible for insuring depositors’ monies if the insured bank fails. The standard coverage is usually ​$250,000​ per depositor, per FDIC-insured bank, per ownership category. Without the FDIC’s approval, it may be difficult to attract customers.
• If they meet all the set criteria at state or federal level, the bank will receive a state or federal charter from a state regulatory agency or the OCC.

Online banks may be chartered. However, they may be chartered under foreign country charter laws.

If your online banking service provider is not subject to U.S. federal or state charters, they may not conduct themselves according to the local financial laws and regulations. That could be risky for you. In such a case, you should find out if your account is FDIC-insured to reduce your risks.