1.

0 Introduction:
A chartered bank is a financial institution (FI) whose primary roles are to accept and safeguard
monetary deposits from individuals and organizations, as well as to lend money out. Chartered
bank specifics vary from country to country. However, in general, a chartered bank in operation
has obtained a form of government permission to do business in the financial services industry.
A chartered bank is often associated with a commercial bank.

2.0 Crucial Facts:

 A chartered bank is a financial institution engaged in the business of providing financial
transactions, such as safeguarding deposits and making loans.
 Most chartered banks have received their government's permission to operate in the financial
services industry.
 In the United States, the Office of the Comptroller of the Currency (OCC) is responsible for
overseeing chartered banks, federal savings associations, and federal branches and agencies of
foreign banks.
 The OCC has the power to grant or deny applications for new charters for national banks and
federal savings associations.

3.0 Understanding a Chartered Bank:

Chartered banks provide core financial intermediary services necessary in today's economy.
Individuals can easily deposit their funds into various types of accounts within a chartered bank,
earning interest on their temporary savings. Chartered banks maintain a flow of currency so they
can process customers' daily transactions, but they lend out most of their deposits to individuals
and commercial borrowers to stimulate economic growth.

4.0 Chartered Bank Oversight:

A bank’s actual charter lays out operational guidelines for the bank, along with how it will
comply
with relevant regulations. This might include how the bank will maintain a certain minimum
capital requirement. In the United States, a charter can be either state or federally issued and
follow to either state agency regulations or federal-oversight regulations, respectively.

The Office of the Comptroller of the Currency (OCC) was created by Congress in 1863 as part of

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the National Currency Act. The OCC directs all federal savings associations and national banks,
along with all federal branches and agencies of foreign banks. The OCC is an independent office
within the U.S. Department of the Treasury and is responsible for approving or denying
applications for new charters for national banks and federal savings associations.

Examiners from the OCC conduct on-site reviews of banks to ensure the institutions operate in a
safe and sound manner. The OCC is responsible for identifying risks to the banking structure and
can take actions against chartered banks for non-compliance, including issuing end and
discontinue orders and imposing penalties. As of 2022, the OCC supervised 1,109 chartered
banks, federal savings associations, and federal branches and agencies of foreign banks.

5.0 Examples of Chartered Banks:

Bank Name Rank
JP Morgan Chase 1
Bank of America 2
Wells Fargo 3
Citibank 4
U.S. Bank 5
PNC Bank 6
Truist Bank 7
Goldman Sachs 8
TD Bank 9
Capital One 10

6.0 Advantage of Chartered Banks:

Before 1863, banks operated under different policies. Peoples did not fully trust banks, and it
was believed that having all banks operate under standard rules would make people feel safer
when putting money into banks.

All chartered banks, whether state or federal, are subject to regular financial examinations of
their managed accounts. These exams are done to ensure banks have the necessary capital to
handle day-to-day transactions. Additionally, banks can be required to go through stress tests to
model situations that might occur and cause financial problems. Due to their standardized

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regulatory requirements and increased monitoring, chartered banks offer a higher level of
security for depositors.

7.0 The Charter Decision:

Bank organizers have several options from which to choose when forming their bank. We will
discuss these options in this report, which depend significantly on the organizers' vision for the
institution. There are several decisions to make when considering a new charter. One choice is
whether the depository institution will be a commercial bank or a savings bank/association.
Another is whether it is to be state or federally chartered.

If an institution chooses a commercial bank charter, the decision is whether to apply for a
national bank charter from the Office of the Comptroller of the Currency (OCC) or a state bank
charter from the state regulatory authority. Commercial banks with a national charter are
supervised by the OCC and are members of the Federal Reserve System. Commercial banks with
a state charter are supervised by both the applicable state banking department and either the
Federal Deposit Insurance Corporation (FDIC) for state nonmember banks or the Federal
Reserve for state member banks.

If an institution chooses a savings bank/association charter, the decision is whether to be a state-

chartered savings association, primarily regulated by the state, or a federal savings
bank/association, primarily regulated by the Office of Thrift Supervision (OTS).

Important points to consider when choosing a charter include the following:

 Regulatory quality - Does the supervisory process add value?

 How accessible and responsive to inquiries is the supervisor?
 What supervisory costs are associated with the charter (e.g., application fees, examination
charges, etc.)?
 What powers, rights, and privileges are discussed by the charter?

8.0 Pre-Filing Contact:

Although filing required applications is the official start of the regulatory application process, it
should not be the first step of the process. Organizers of new banks are strongly encouraged to

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contact bank regulators prior to filing the required applications. Pre-filing contact, in the form of
a meeting or telephone conference with key organizers and supervisors, provides a forum for
organizers to obtain specific instructions regarding the application process and filing
requirements. Further, whether the de novo will operate with a minority focus or operate
generally, the organizers will benefit from guidance regarding access to capital, organizing
boards of directors, and regulatory expectations. Insight into these areas may improve strategic
decisions, reduce costs, and speed the application process. Regulators can also provide feedback
regarding potential issues related to specific charter proposals. For example, pre-filing contact
allows for identification of any issues that might be revealed through advance background
checks of the organizers, analysis of initial capital adequacy, and study of management's
business plan for fairness.

In the past, some de novo organizers have faced challenges during the chartering process that
could have been prevented by pre-filing contact with bank regulators. Early recognition of issues
allows them to be addressed before submission of the application, facilitating efficient
processing of the application.

9.0 The Charter and FDIC Insurance Application:

The Interagency Charter and Federal Deposit Insurance Application (interagency form) is a
combined interagency form issued by the OCC, the OTS, and the FDIC. This form helps to
eliminate duplicative information requests by combining the reporting requirements of the
above-mentioned regulatory agencies into one uniform document.

All three agencies use the interagency form, regardless of the type of charter under consideration.
However, the decision to grant or deny the charter application is independent of the decision to
grant or deny deposit insurance. Further, depending on the chartering agency (i.e., OCC, OTS, or
the state) and membership status (i.e., Federal Reserve member or nonmember), additional
applications may be required by the appropriate state agency and the Federal Reserve,
respectively.

Regardless of membership status, state-chartered banks must file a separate charter application
with the appropriate state banking agency, in addition to the interagency form. The Federal

4
Reserve is in the process of changing the policy to allow one combined application to be filed.
Further, for a Federal Reserve state member bank, a separate membership application (Form
2083 A/B/C) must also be filed, after preliminary charter approval is granted by the appropriate
state chartering agency.
10.0 What Regulators Look For:
When a regulator reviews new bank applications, the primary objective is to ensure compliance
with laws, regulations, and supervisory policy. For instance, certain factors must be given special
consideration in approving de novo bank applications, including managerial factors, financial
factors, capital adequacy, and convenience and need.

Managerial factors address the competence, experience, integrity, and financial ability of the
institution's organizers and management. Financial factors address the capability of the business
plan and the ability to achieve and maintain profitability. Capital adequacy addresses the bank's
capital in the context of its future growth and earnings prospects, verifying that the bank is
raising the required capital. Convenience and need address how the bank plans to serve the
financial services needs of the public.

11.0 Holding Company Formations:

Along with chartering decisions, organizers should consider whether to have a bank holding
company take ownership of their bank or remain independent. Bank holding companies allow
banks to more easily expand geographically; to move into other product markets (nonbanking
activities); and to obtain greater tax benefits and financial flexibility, thereby avoiding some of
the limitations imposed by regulation, including limitations on leverage, the types of assets that
can be acquired, and liabilities that can be issued.

Bank holding company formations and supervision are the responsibility of the Federal Reserve.
The Federal Reserve has adopted, and continues to follow, the principle that bank holding
companies should serve as a source of managerial and financial strength for their subsidiary
banks. A separate application is needed to form a holding company. This application can be filed
in combination with the charter application.

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12.0 Fees to Consider:
There are direct regulatory costs to consider when chartering a new bank. These fees include
charter fees, application fees, and ongoing supervision fees. Charter fees are a one-time charge,
calculated when the bank is initially chartered. Application fees are associated with any
subsequent application filed, including charter conversions, branching, purchase and assumption,
merger/acquisition, and change in control applications. Supervision fees, or calculations, are
charged for ongoing regulatory examinations.

While OCC fees are uniform across states, state fees vary from state to state and are generally
lower than OCC fees. The Federal Reserve does not charge any fees. Although the FDIC does
not charge fees, insurance premiums are imposed in connection with FDIC insurance.

13.0 Public Nature of Applications:

In contrast to many other aspects of the supervisory process, the applications process is a very
public function. Federal regulations require that notice of certain proposals be published in a
newspaper of general circulation in the communities that will be affected by a banking proposal
to allow the public an opportunity to comment on the proposal. The public is informed upon
receipt of certain types of applications, and the application itself is considered a public document
available for review upon request (confidentiality can be requested for private information).
Further, the result of the application is also made public.

Although the Federal Reserve membership application does not require newspaper publication,
the action taken on such applications is still made available to the public.

14.0 Required Stock Subscription for Member Banks:

As a condition of membership in the Federal Reserve, member banks (both state and OCC
chartered) are required to subscribe to stock in their District's Federal Reserve Bank. The
required subscription is equal to 6 percent of the bank's capital and surplus; 3 percent must be
paid in, and the remaining 3 percent is subject to call by the Board of Governors of the Federal
Reserve.

Holding stock in a Federal Reserve Bank does not carry with it the typical control and financial
interest conveyed to holders of common stock in for profit organizations. The stock may not be
sold or pledged as collateral for loans; it is merely a legal obligation required with membership.

6
Annually, member banks will receive a 6 percent dividend on their stock, as specified by law,
and they can vote for some of the directors (class A and class B directors) of their Reserve Bank.

15.0 Customers Wants from Banks:

While managers of financial institutions have developed many unique service-delivery facilities
for many different reasons, checking up on the cars they finance is usually not one of them.
Rather, financial-service facilities are usually established today for the convenience of
customers.

For example, customers want to be able to access their checking and savings accounts and access
loans at a time and place that conveniently answers their daily needs. For most of the history of
financial-service providers, “convenience” has meant location. Businesses and households have
preferred to buy the services supplied by a financial firm located in the same community or
neighborhood rather than from a financial institution situated across town, in another region, or
country.

However, customers’ views about what is “convenient” are changing rapidly with the growing
use of the Internet, home and office computers, cell phones, automated tellers dispensing cash
and accepting deposits, point-of-sale terminals in retail stores, and credit cards that grant access
to an instant loan any time and place without requiring lender approval of every purchase.

These newer technologies for storing and transmitting financial information have wasted the
significance of physical location (geography) as the main factor of which financial firm a
customer chooses today. In the modern world timely access to financial services, not just
physical location, becomes the key indicator of customer convenience. For example, it may be
faster and less difficult to request a loan over the telephone or through an online application or
via fax from hundreds of miles away than it is to visit a financial-service provider situated only
few blocks away, but reachable only by going through traffic and crowded parking lots, and open
only during regular business hours.

However, for some important financial services today especially transaction accounts, smaller
savings deposits, safety deposit boxes, and consumer and small business loans physical presence
is still of considerable importance to many customers. This is especially true when something
goes wrong with a service account.

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For example, when a customer discovers that his or her account is overdrawn, or if he or she
suspects an account is being wronged by identity thieves, or when the customer’s estimate of an
account balance does not agree with the institution that holds that account, and checks or charges
begin to bounce, the existence of a nearby service facility may become important. Thus, for some
financial services, especially when special problems arise, the convenient location of a financial-
service provider is a valued service to many customers. In deciding how they will respond to
customers’ changing demands for timely access to services, financial firms today have several
options to choose from:

1. Chartering new (de novo) financial institutions.

2. Establishing new full-service branch offices, offering most or perhaps all the services also
available from the home office.
3. Setting up limited-service facilities, including drive-up and walk-up teller windows, self-
service terminals inside branch offices, automated teller machines, point-of-sale terminals in
retail stores, cell phone connections, home and office computers linked to a financial institution’s
computer through the Internet, and other quickly developing electronic media.
Meeting Customers Changing

Chartering New FI
Demand

Establishing New Full-

service Branch Offices

Setting up Limited-
service Facilities

financial firms’ options to customers’ changing demands.

16.0 Chartering a New Financial Service Institution (De Novo):

8
No one can start a financial firm inside the United States (and in many other nations as well)
without the express approval of federal or state authorities, and sometimes both. This is
particularly true for depository institutions (such as banks, credit unions, and savings
associations).

For example, in the case of banks, the public’s need for a new (de novo) bank in a particular
location must be verified and the honesty and competence of its organizers and proposed
management established. Sufficient protection against failure must be provided in the form of
equity capital guaranteed by the founding stockholders. Usually, they must supply enough start-
up capital (often in the $2 million to $10 million range) to cover several years (usually at least
the initial three years) and show that the proposed new institution will achieve adequate levels of
profitability.

17.0 Requirement for Supervising the New FIs:

Government chartering agencies believe financial-service providers need special scrutiny for
several reasons: (1) they hold the public’s savings, and unregulated chartering activity might
result in poorly capitalized institutions that fail; (2) many financial firms are at the heart of the
payments process to support trade and commerce, so their failure could disrupt business activity;
and (3) they often create money (immediate spending power), which suggests that chartering too
many might result in excessive money creation and inflation. Although there is considerable
debate about the validity of these arguments, they establish the key rationale for the elaborate
structure of cradle-to-grave regulation and restrictions on entry that still characterize many
financial systems today.

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 Requirement for Supervising the New FIs

Financial firms Financial firms

Financial firms
hold the are the heart of
create money
public’s savings payments process

Reasons for supervising the FIs.

18.0 Financial Firms Chartering Process:

To understand more fully the process of chartering new financial firms let’s take a close look at
how new banks are chartered in the United States. Only the banking commissions in each of the
50 states and the Office of the Comptroller of the Currency (OCC), a division of the Treasury
Department can issue a charter of incorporation to start a new U.S. bank. Federal standards for
receiving a bank charter are more difficult than the rules of state banking commissions.
However, organizers often seek a federal bank charter for the added prestige it conveys in the
minds of customers, especially large depositors.

Office of the Comptroller

Banking commissions in
of the Currency (OCC)
each of the states
(Division of the Treasury Department)

Charter of Incorporation

Federal (National) Charter State Charter

Chartering Authority and chartering standard.

The choice between seeking a federal or a state charter usually comes down to weighing the
benefits and costs of each for the bank and location the organizers have in mind. The key
benefits include the following:

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18.1 Benefits of Applying for a Federal (National) Charter –
 It brings added prestige due to stricter regulatory standards that may attract larger deposits.
 In times of trouble the technical assistance supplied to a struggling institution by national
authorities may be of better quality, giving the troubled bank a better chance to survive.
 Federal rules can pre-hold state laws.

18.2 Benefits of Applying for a State Charter –

 It is generally easier and less costly to secure a state charter and supervisory fees are usually
lower.
 The bank need not join the Federal Reserve System.
 Some states allow a bank to lend a higher percentage of its capital to a single borrower.
 State-chartered banks may be able to offer certain services (e.g., real estate brokerage) that
national banks may not be able to offer.

19.0 Enquiries of Regulators Regarding New Bank (De Novo):

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 1 . W h a t a re th e p o p u la ti o n a n d g e o g ra p h ic b o u n d a rie s o f th e (P S A )?
2 . H o w m a n y co m p e ti n g b a n k s, cre d it u n io n s, fi n a n ce co m p a n ie s a re lo ca te d w ith in th e P S A ?

3 . W h a t a re th e n u m b e r, ty p e s, a n d size s o f b u sin e sse s in th e a re a ?

4 . W h a t a re th e tra ffi c p a tt e rn s, a d e q u a cy o f ro a d s, a n d g e o g ra p h ic b a rrie rs to th e fl o w o f tra ffi c sy ste m ?

5 . W h a t is h a p p e n in g to p o p u la ti o n g ro w th , in co m e s, ty p e s o f o ccu p a ti o n s, e d u ca ti o n a l le v e ls, a n d th e
a g e d istrib u ti o n o f re sid e n ts in th e P S A ?
6 . A sk e d to d e scrib e th e fi n a n cia l h isto ry o f th e co m m u n ity se rv e d , n e w fi n a n cia l fi rm s h a v e a p p e a re d
a n d th e ir tra ck re co rd ?

7 . W h o is to o w n a n y sto ck issu e d ?
W h a t a m o u n t o f sto ck w ill b e h e ld b y th e o rg a n ize rs, d ire cto rs, a n d o ffi ce rs?

8 . H o w e xp e rie n ce d a re th e o rg a n ize rs, m a n a g e m e n t, a n d b o a rd o f d ire cto rs?

9 . W h a t a re th e p ro je cti o n s fo r d e p o sits, lo a n s, re v e n u e s, O E , a n d N I fo r th e fi rst fe w y e a rs?

List of enquiries of regulators.

It is instructive to look at the types of information chartering authorities may demand before
approving or denying a charter application. These criteria may be used by organizers and
chartering agencies to assess a new financial firm’s prospects for success:

1. What are the population and geographic boundaries of the primary service area (PSA) from
which the new financial firm is expected to generate most of its account activity? The PSA must
have enough businesses and households to ensure an adequate customer base for the new
institution.
2. How many competing banks, credit unions, finance companies, and other competitors are
located within the service area of the proposed new financial institution? What are competitors’
services, hours of operation, and distances from the proposed new institution? The stronger
competition is, the more difficult it is for a new financial firm to attract sufficient customers.
3. What are the number, types, and sizes of businesses in the area? Many new financial service
providers depend heavily on the demands of businesses for commercial deposit services and
loans to stock their shelves with inventories and purchase equipment.

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4. What are the traffic patterns in the area, adequacy of roads, and geographic barriers to the
flow of traffic? Most new financial-service firms are situated along major routes of travel for
customers going to work, to shopping, and to schools, providing greater convenience.
5. What is happening to population growth, incomes, types of jobs represented, educational
levels, and the age distribution of residents in the proposed service area? The presence of well-
educated residents implies higher incomes and greater use of financial services.
6. The organizers often are asked to describe the financial history of the community served, the
frequency with which new financial firms have performed and their track record. The rapid
growth of financial institutions in the service area and strong profitability among these
institutions suggests that the proposed new institution might also become profitable and
experience growth.
7. Who is to own any stock issued? What amount of stock will be held by the organizers,
directors, and officers? The chartering agency wants to be sure the new institution can raise
adequate capital to support its future growth and protect the public.
8. How experienced are the organizers, management, and board of directors of the new
institution? Successful business people on the board and staff will help attract new accounts.
9. What are the organizers’ projections for deposits, loans, revenues, operating expenses, and net
income for the first few years? The quality of these projections may light up on how much the
organizers of a proposed new financial firm know about the business.

Under the feasibility standard adopted by the Comptroller of the Currency applicants for a
national bank charter are required to submit a business plan, which contains a description of the
proposed bank and its marketing, management, and financial plans. Such a plan normally covers
several years and describes how the proposed bank will organize its resources to achieve its
goals. The Comptroller’s office looks for accurate calculations of market demand, the possible
customer base, competition and economic conditions and the risks inherent in the services to be
offered to the public. A marketing plan must assess the prospects for achieving the organizers’
projections for revenue, customer volume, and income. The organizers must also demonstrate
that the new institution will hire skilled management and enlist qualified directors.

An application to the Federal Deposit Insurance Corporation (FDIC) is filed at the same time a
charter application is tendered to the Comptroller’s office in order to speed up the new bank
formation process and avoid repetition of effort. The Federal Deposit Insurance Corporation

13
Improvement Act of 1991 requires all depository institutions, including both new federally
chartered and new state-chartered banks to apply to the FDIC for insurance coverage.

20.0 Factors Considered for Seeking a New Charter:

Filing a charter application is a costly process. The organizers must carefully analyze their
business projections and answer several questions regarding external and internal factors that
might affect the new institution’s chances for success.

Factors Considered
External Factors Internal Factors

The level and growth of economic Qualifications and contacts of the

activity. organizers.

The need for a new financial firm. Management quality.

The strength and character of competition in Pledging of capital to cover the cost of filing a
supplying financial services. charter application and getting under way.

Factors considered for requesting a New Charter.

20.1 External factors the organizers should consider include:

a. The level and growth of economic activity: Is it high enough to generate sufficient service
demand? Often measured by the volume of retail sales, personal income, bank debits (i.e., check
volume), and number of households and businesses in the service area.
b. The need for a new financial firm: Has the population grown or moved into new areas not
currently receiving convenient financial services? Often measured by population per banking
office, recent earnings and deposit growth, and the number and size of new residential
construction projects.
c. The strength and character of competition in supplying financial services: How many
competing financial institutions are there, and how aggressive are they in advertising their
services? This is often measured by the number of offices relative to area population and the
number of other financial institutions offering transaction accounts, savings plans, and business
and household credit.
20.2 Internal factors the organizers should consider include:
a. Qualifications and contacts of the organizers: Do the organizers have adequate depth of

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experience? Is their reputation strong enough to attract customers?
b. Management quality: Have the organizers been able to find a chief executive officer with
adequate training and management experience? Will the organizing group be able to find and pay
competent management to fill the new institution’s key posts?
c. Pledging of capital to cover the cost of filing a charter application and getting under way:
Is the net worth position of the organizers strong enough to meet the initial capitalization
requirements imposed by regulation and cover consulting and legal fees? Because the chartering
process often covers months and may wind up in court if competitors file suits before the new
firm is allowed to open, do the organizers have sufficient financial strength to see the project
through to completion?
21.0 Volume and Characteristics of New Charters:
In view of all the foregoing issues and their associated costs and risks, it may come as no
surprise that only a fraction of the people and institutions who consider starting a new financial
firm ultimately submit formal applications for new charters. Yet, surprisingly, the number of new
depository institutions chartered in the United States annually has averaged over a hundred new
banking firms in many recent years due, in part, to the displacement of many officers who lost
their jobs when their former institutions were merged and decided to start a new one. Then, too,
there appears to be considerable public demand for more personalized service sometimes not
available from large, established financial firms.

Clearly, merely getting charter approval does not end the challenges facing a new firm’s
organizers and management. Following charter approval, stock can be legally offered to the
public through an offering memorandum that describes the charter’s business plan and terms of
sale. Corporate bylaws must be adopted, operating policies drafted, and bonding and insurance
secured for employees.

Where are most new charters located? For example, what types of markets do new banks serve?
Analysis of charter approvals suggests that most new banks are chartered in relatively large
urban areas where, probably, expected rates of return on the organizers’ investments are the
highest. As population increases relative to the number of financial firms operating in each state,
increased numbers of new charters are issued. Probably, many organizers view population
growth as a proxy for growth in the demand for financial services. The faster bank assets grow,

15
for example, the greater the probability of chartering new banks, probably because the success of
area banks leads new-bank organizers to expect success when their institution is chartered.
Moreover, higher past profits, greater market size, and wealthier markets appear to be associated
with more intensive bank chartering activity.

The great recession of 2007 - 2009, like most prior recessions, watched to reduce bank chartering
activity for example, between 2008 and 2009 bank charters of incorporation fell from almost 100
to only about 30 across the United States. By 2010 new U.S. bank charters declined to just 14.

In contrast, significant increases in concentration ratios tend to reduce chartering activity, as does
the expansion of existing branch office networks. This suggests that some organizers fear having
to take on a dominant financial firm in their chosen area. Still, no one has found convincing
evidence that new “fledgling” financial firms are overwhelmed by their competition or that they
can be driven from most markets if they are willing to compete. Indeed, areas that have had
recent merger activity appear to be more likely to attract charterings of new financial firms.

22.0 Performance Trend of New Charters:

Launching a new financial firm involves risk. There is no guarantee the new institution will
survive
and prosper. Deregulation of the financial sector has brought scores of new competitors into
traditional markets. Moreover, existing financial firms have an advantage over newly chartered
institutions in their greater experience, size, and well-established reputations. How successful, in
general, are new financial firms?

Research findings for the banking industry, at least, are generally optimistic. Most new financial
firms grow at a moderate to rapid rate, attracting funds from their organizers, from business
associates, and from customers dissatisfied with other financial-service providers. Increases in
loan accounts tend to outstrip gains in deposits as customers denied loans by other lending
institutions move quickly to sound out the credit policies of the new institution. Despite a track
record of loan losses that generally exceed those of established banks, most new banks are often
profitable within two to three years after opening their doors.

In a review of new banks formed it is found that early monitoring and control of operating
expenses are vital for a new bank to be successful. It must carve out a solid niche in the

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community that differentiates it from other financial-service providers in the minds of customers.
Research also suggests that early performance is strongly tied to the experience, financial
strength, and market contacts of those who put the organization together. It is found that the
volume of deposits generated by the first board of directors accounted for a major share of
deposits brought in during the initial year of operation. This finding emphasizes the need to find
organizers who have successfully operated other businesses. Moreover, the growth of household
income and business sales appear to be positively related to institutional growth.

* Closely supervised by
* Financially fragile
government regulators.
* Prone to failure
* Examined more frequently.

Performance

* Tendency to underperform * Tend to underperform in

due to vulnerability to real profitability and efficiency
estate crises
Way new Banks are performing.

Evidence on whether the prices of financial services were reduced is decidedly mixed, however.
Most studies find few price effects from the entry of new competitors. Finally, a recent study
prepared for the FDIC, summarizes the findings of several more recent new charter studies:

 The most recently chartered banks show evidence of being “financially fragile” and more
prone to failure than established banks.
 New banks tend to underperform established banks in profitability and efficiency until they
reach maturity (which may be as much as nine years after opening).
 One reason for new banks’ tendency to underperform is that they appear to be more
vulnerable to real estate crises because their portfolios are often heavily invested in riskier real
estate loans.
 Today new banks are more closely supervised by government regulators than are established
institutions and tend to be examined more frequently.

23.0 Establishing Full-Service Branch Offices:

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When an established financial institution wishes to enter new markets or when its valued
customers move, an important vehicle for market entry is the creation of new branch offices,
offering many, if not all, the services available from the home office. Indeed, for most of the
world branch office expansion has been the most frequent mode of entry into new financial-
service markets.

Establishing branches is usually much cheaper than chartering new financial-service

corporations. Less capital is required, the application for new branch offices is less detailed than
is usually required for a new corporate charter, and duplication of staff is usually much lower
because a new branch doesn’t normally require a full slate of officers and operations personnel,
like a new corporation would. Partly as a result, new branch offices have generally grown in
recent years to more than 80,000 in the United States alone as the newest decade unfolded.
However, net new branches have slowed recently, averaging 700 or less annually.

The branching leader in the United States, the Bank of America, has more than 6,000 U.S.
offices of various kinds, while New York’s Citigroup, with a somewhat wider global focus, has
about 3300 operating branches. Finally, JP Morgan ranks third in full-service branches among
America’s top banks. While these numbers of branches are impressive, we must also note that
many of banking’s leaders beginning in 2010 and 2011 announced large-scale branch closings.
They saw this move as a device to offset losses in revenue, deflate operating expenses, and reach
customers through electronic means rather than by building bricks and mortar. Variations in
branches are frequently a management device for financial firms to protect profits and buffer
costs.

24.0 Choosing Locations and Designing New Branches:

The location, design, and services offered by a branch office depend, first, upon the preferences
of customers and, second, on the preferences of management and employees. Marketing research
suggests that most customers rate an atmosphere of confidentiality, “homeyness,” and privacy in
carrying out their personal transactions as important features of new branch offices. And
customers and employees seem also to rank efficiency high in describing the arrangement of an
ideal branch office-service departments and workstations should be easily reachable for both
customers and employees.

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Bank One, based in Chicago (now a part of JP Morgan Chase Corp.) was, for many years, an
industry leader in testing out new ideas for the design of branch offices and other customer
service facilities. When the customer entered one of its newer branches, he or she was often
confronted with such eye-catching features as neon lights highlighting what financial services
each department offered. To further ease customer anxiety, there was often an information desk
near the entrance to help confused customers find the service counters that best meet their needs.
Visually attractive advertisements often confronted customers waiting in the lobby. Bank One
developed both full-service branches, providing traditional services (such as loans and deposits),
and specialized branches (“boutiques”), supplying services specifically geared to their local area
(such as investment products for retired customers). Other branch-office innovators have
included Wells Fargo, Bank of America, Royal Bank of Canada, and Charter One Financial.

Recent research suggests that a branch office for that company cost $1 million or more to open.
Other estimates suggest an average per-branch cost of at least $2 million to $3 million and often
more was needed in order to get started. The average branch today provides jobs for roughly a
dozen employees and reaches the break-even point in as little as 18 months. Measured by the
number of employees, average branch size appears to be falling, however, thanks to continued
advances in information technology. Whatever the size, though, research suggests that customers
(especially new ones) need guidance about where to go and what services are available from
each branch office. Otherwise, they may become frustrated and go elsewhere.
24.1 Desirable Sites for New Branches:

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 4. Area that include
business owners, 7. Above-average
1. Heavy traffic count. managers, & population density.
professional men &
2. Large numbers of women. 8. A relatively high
retail stores. 5. Number of service target ratio of
facilities operated by population per Branch.
financial-service
3. Populations that are
competitors.
of above-average age. 9. Above-average levels
6. Above-average of household income.
population growth.

Characteristics of Desirable Sites for New Branches.

Among the most desirable sites for full-service branch offices today are those with at least some
of the following characteristics:
1. Heavy traffic count (for example, 30,000 to 40,000 cars or more per day), indicating a large
flow of vehicular traffic (and potential customers) passing near the proposed site. But even at
peak times (e.g., on Friday afternoons) customers must be able to easily access the office and its
drive-up windows.
2. Large numbers of retail stores present in the surrounding neighborhood, which often generate
a substantial volume of loan and deposit business.
3. Populations that are of above-average age (particularly those individuals 45 years of age and
older) who often have begun to accumulate substantial amounts of savings and need advice on
how to invest those savings.
4. A surrounding area that encompasses substantial numbers of business owners, managers, and
professional men and women at work or in residence.
5. A steady or declining number of service facilities operated by financial-service competitors,
leaving a substantial volume of business that a new branch might be able to attract.
6. Above-average population growth.
7. Above-average population density (i.e., a greater number of persons per square mile around
the

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proposed site).
8. A relatively high target ratio of population per branch, measured by:

9. Above-average levels of household income, with higher-income groups usually offering the
opportunity to sell more services.

For offices designed primarily to attract deposits, key branch sites to look for usually include
neighborhoods with relatively high median incomes, heavy concentrations of retail stores, older-
than-average resident populations, and high proportions of homeowners rather than renters. For
branches primarily created to generate loan demand from household customers, residential areas
with a heavy proportion of young families and substantial new-home construction, along with
concentrations of retail stores and high traffic flow, are particularly desirable locations. In
contrast, commercial loan demand is usually focused upon central city office locations where a
lending institution’s credit analysts and loan approval committees are normally housed.

A recent study at the Federal Reserve Board finds that the number of financial-service branch
offices in each local market is likely to be determined by the market’s population and the size of
its per capita income. Other factors include state regulations, market concentration (dominance
by the largest financial firms), the returns generated by attracting deposits, and (at least in urban
markets) the amount of traffic congestion.
25.0 Conclusion:
A charter allows a financial institution to perform certain financial services, including accepting
deposits, making loans, and providing a range of fiduciary services to its customers. While some
charters allow banks to do all these things, others are limited in purpose to allow only a subset of
financial services.

Chartered banks are key financial institutions that offer a wide variety of services to individuals
and businesses. These institutions are authorized to operate by a charter granted by a state or
federal regulatory authority. A chartered bank is a financial institution that is allowed to issue
banknotes and is subject to government regulation. They are also responsible for storing and

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protecting the money deposited by their customers. Chartered banks play a significant role in the
financial system, and they are essential to the economic growth of countries.

Chartered banks are one of the most important financial institutions in the world. They provide a
wide variety of services to individuals and businesses and play a critical role in the economic
growth of countries. Understanding the role of chartered banks is essential for anyone interested
in the world of finance.

As banking became more complex, governments began to take an interest in regulating the
industry. In many countries, this took the form of granting charters to banks, which gave them
the legal authority to operate and conduct business. These charters typically came with certain
requirements and restrictions, such as minimum capitalization requirements and limits on the
interest rates that could be charged.

In the modern era, chartered banks have become global institutions. They offer a wide range of
financial products and services, from simple savings accounts to complex derivatives and
securities. They also play an important role in the global economy, providing capital to
businesses and individuals, and facilitating international trade and investment.

List of Abbreviation

TERM ELABORATION
FI Financial Institution
OCC Office of the Comptroller of the Currency
FDIC Federal Deposit Insurance Corporation
OTS Office of Thrift Supervision
PSA Primary Service Area

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 References

1. Bank Management & Financial Service by Peter S. Rose and Sylvia C. Hudgins.

2. https://www.investopedia.com/terms/c/charteredbank.asp

3. https://www.maine.gov/pfr/financialinstitutions/industry-tools/chartering-a-new-

financial-institution

4. https://www.fedpartnership.gov/bank-life-cycle/start-a-bank/de-novo-bank-application-

process

5. https://fastercapital.com/content/The-Role-of-Chartered-Banks--A-Guide-to-Financial-

Institutions.html

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