FAQ »

Frequently asked questions about banks

Frequently asked questions about banksWe are frequently asked about banks, banking, bank ownership and financial institution management. Below are a few questions along with our answers to each. If you don't see your question & answer, or if you need more insight, please contact us.

» What do banks really do?
» What is the "dual banking system"?
» Are there other types of financial institutions?
» What is a savings bank?
» What is a savings and loan?
» What is a credit union?
» If I want to invest in a financial institution, how do I know which type of charter would best suit my purposes?
» How do the regulatory bodies interface with the institutions?
» Who examines each type of financial institution?
» What do the financial institution regulatory bodies examine?
» Under what circumstances are new bank charters granted?
» What are the principles that guide the financial institution regulatory process?
» How much capital is necessary?
» When banks are examined, is there a rating assigned?
» How does the Community Reinvestment Act rating impact the financial institution?

» What do banks really do?
As part of our financial system, banks provide an efficient way to make funds available to those who need them. Banks, by focusing on raising deposits and making loans, achieve great economy of operation that reduces the cost of bringing together lenders, depositors (who place their funds in banks), and borrowers (customers who need to borrow money).
» back to top

» What is the "dual banking system"?
Banks can be chartered by either federal or state authorities in the United States—the dual banking system. It traces its origins back to the National Banking Act that created federal competition to state charted banks.
» back to top

» Are there other types of financial institutions?
Yes. In addition to commercial banks, there are thrift institutions, which include savings banks, savings and loan associations, and credit unions.
» back to top

» What is a savings bank?
A savings bank is a depository institution historically and primarily engaged in accepting consumer savings deposits, and in originating and investing in securities and residential mortgage loans; many now offer checking-type deposits and make a wider range of loans.
» back to top

» What is a savings and loan?
A savings and loan is a state or federally chartered financial institution that accepts savings and checkable deposits from the public and invests them primarily in mortgage loans. A savings and loan association may be either a mutual or capital stock institution, and may also make loans to businesses and consumers.
» back to top

» What is a credit union?
A credit union is a financial cooperative organization of individuals who have a common bond, such as place of employment or residence or membership in a labor union. Credit unions accept deposits from members, pay interest (in the form of dividends) on the deposits out of earnings and use their funds to provide consumer installment loans to members.
» back to top

» If I want to invest in a financial institution, how do I know which type of charter would best suit my purposes?
There are many factors that would influence your decision. First, what, if anything, would you change about the present operations of the institution? Do you want to serve a nationwide client base? Do you intend to open branches and, if so, where? For what purpose? Cerfis Group excels in helping you match your goals to the proper charter and institution. Talk with us.
» back to top

» How do the regulatory bodies interface with the institutions?
After a financial institution opens for business, it operates according the organizers’ business plan. As with any business, that plan changes as necessary to meet economic and market demands. The regulators periodically perform onsite examinations to ensure safe and sound operations.
» back to top

» Who examines each type of financial institution?
The chief regulators for institutions by type are as follows:

• National Banks: Office of the Comptroller of the Currency (OCC)
• State, member banks: The State and the Federal Reserve System
• State, non-member bank: The State and the Federal Deposit Insurance Corporation
• Thrift institutions: The Office of Thrift Supervision
» back to top

» What do the financial institution regulatory bodies examine?
There are three basic types of examinations. First, the “safety and soundness” examination reviews the overall operations of the bank to ensure its operations are sound and offer little risk to the Deposit Insurance Fund (formerly known as the Bank Insurance Fund or BIF).

The second type of examination is the compliance exam, which reviews the banks operations to ensure the bank treats all persons fairly, equitably and in compliance with laws and regulations.

If the bank has trust powers, its trust operations are also examined.
» back to top

» Under what circumstances are new bank charters granted?
Federal and state authorities alike charter banks to meet community need. While there are many considerations, the general thought is stated in the Office of the Comptroller of the Currency’s regulation, 12CFR5:

“The marketplace is normally the best regulator of economic activity, and competition within the marketplace promotes efficiency and better customer service. Accordingly, it is the OCC’s policy to approve proposals to establish national banks, including minority owned institutions, that have a reasonable chance of success and that will be operated in a safe and sound manner. It is not the OCC’s policy to ensure that a proposal to establish a national bank is without risk to the organizers or to protect existing institutions from healthy competition from a new national bank.”
» back to top

» What are the principles that guide the financial institution regulatory process?
• Maintain a sound banking system
• Encourage banks to meet credit needs of the entire community
• Rely on the marketplace as the best regulator of economic activity
• Encourage healthy competition to promote efficiency and better customer service
» back to top

» How much capital is necessary?
While there are minimum capital standards imposed by the regulations, capital adequacy is a best determined by reviewing the institutions risk profile.
» back to top

» When banks are examined, is there a rating assigned?
The rating assigned after a safety and soundness examination is known as CAMELS, an acronym for capital, asset quality, management, earnings, liquidity, and sensitivity. These are the six components of the examination. The rating is NOT made public.

The bank will also be subjected to a compliance examination, on which a rating is assigned. The Community Reinvestment Act mandates that a portion of the rating is made public.
» back to top

» How does the Community Reinvestment Act rating impact the financial institution?
If a bank desires to expand or change its market, its regulator will be guided by how well the institution presently serves that market. A determinant in that assessment is the Community Reinvestment Act (CRA) rating. Without a positive rating, it is rare that such an institution would be granted the permission to make any changes.
» back to top

About Cerfis

Cerfis Group, Inc. is a collection of talented, seasoned professionals who possess a rich depth of experience in all facets of bank and financial institution… more »

Customized Training

» Banker 101 for the Non-Banking…
» Time Management
» Banker 101…For the New…
» Profit Driven Marketing…or…