SIC 6021 National Commercial Banks

SIC 6021

This classification includes commercial bank and trust companies (accepting deposits) chartered under the National Bank Act. Trust companies engaged in fiduciary business but not regularly engaged in deposit banking are classified in SIC 6091: Nondeposit Trust Facilities.

NAICS CODE(S)

522110

Commercial Banking

522210

Credit Card Issuing

523991

Trust, Fiduciary, and Custody Activities

INDUSTRY SNAPSHOT

The U.S. commercial banking industry was healthy in the mid-2000s, surviving the sluggish economy of the early 2000s with few significant repercussions. The frenetic pace of industry consolidation that had characterized the 1990s began to slow, partly because the number of players had dropped so considerably. Indicative of the massive consolidation of financial services in the United States, there were 7,598 commercial banks in operation in the first quarter of 2005, down from 8,129 in 2002, and down dramatically from 18,769 at the end of 1975. The number of mergers and acquisitions that took place in 2004 fell to 226, compared to 475 in 2000. At the same time, the number of new banks established in 2004 dropped to 122, compared to 217 in 2000.

Commercial banks held over $8.6 trillion in assets in March 2005, registering a year-on-year increase of 5 percent from 2004. The 445 largest banks—those with assets of more than $1 billion—accounted for 87 percent of the banking industry's total asset base.

Commercial banking was among the first industries to develop in the United States. Subject to a convoluted set of regulations at the state and federal levels, the banking industry is broad in scope and complex in nature. Modern commercial banks provide both individual and corporate customers with an increasing number of financial services. Recent innovations in this industry include the introduction of credit cards, accounting services for corporate firms, factoring, leasing, trade in Eurodollars, lock box banking, and security investment. Banks are constantly seeking to improve service to customers by expanding the quality and number of their services.

Commercial banks perform at least eight major functions in the U.S. economy. First, banks facilitate the elastic credit system that is necessary for economic progress and steady growth. Second, they allow the efficient transfer of money between firms and individuals. Third, they encourage the pooling of savings, making these savings available for lending. Fourth, banks extend credit to credit-worthy borrowers, increasing production and capital investment. Fifth, banks facilitate the financing of foreign trade by converting various currencies. Sixth, they act as trust administrators and advisors. Seventh, they aid in the safekeeping of valuables. Finally, since 1999, banks have been allowed to engage in brokering activities, buying and selling securities for customers.

Numerous banks in the mid-2000s continued to take advantage of the Gramm-Leach-Bliley Act—landmark legislation passed in late 1999, which allowed banks to engage in other activities, as long as they are financial in nature, by transforming their status from BHCs to financial holding companies (FHC). Although only 600 in number in 2004, over half of the nation's largest banks (with assets in excess of $10 billion) had elected to become FHCs. By the mid-2000s, FHCs controlled over 75 percent of all BHC assets. The top FHCs in 2005 were Citigroup, Inc., J. P. Morgan Chase & Company, Wells Fargo and Company, and Wachovia Corporation.

Despite the increasingly relaxed regulatory climate, the banking industry is one of the most regulated parts of the U.S. financial system. The industry operates under the supervision of three regulatory agencies: the Federal Reserve System, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). The Federal Reserve System, created in 1913, is the central bank of the United States and is responsible for monetary policy. Its operations are carried out by its 12 regional banks. The OCC has wide discretionary authority, which it uses in routine examinations of all national banks' books to identify unsafe or unsound banking practices. This agency is the most involved with national bank regulation. The OCC has the authority to take any actions necessary to correct the conditions resulting from violations of law or sound and safe banking practices. Finally, the FDIC was created to reduce the risk of making deposits by insuring the deposits of member banks, both national and state.

ORGANIZATION AND STRUCTURE

The National Bank Act of 1863 created the basis for the first national U.S. banking system and continues to serve as the basic banking law for American national banks. The act was originally created to provide a uniform national currency backed by U.S. Government bonds that would replace the various currencies issued by state banks and other forms of exchange that were then in use. The original plan for the national banking system was outlined by Salmon Chase, the secretary of the treasury, in 1861.

National banks are chartered and supervised by the Comptroller of the Currency of the United States. The charters issued by the comptroller are of indefinite duration. Upon the submission of an application, a national bank examiner in the region where the proposed national bank will be located initiates an investigation of the bank, focusing on the character and experience of the organizers, existing banking facilities, and prospects for success. A national bank must meet certain capitalization requirements depending upon its location and cannot begin operation until it has paid-in surplus equal to 20 percent of its capital. The examiner puts the capital and paid-in surplus of each bank to an "adequacy" test that subjects each potential bank to criteria based on established minimal capitalization levels and analysis of local conditions. If the application is accepted, the Comptroller of the Currency issues the necessary documentation to the bank and, eventually, a certificate to commence business.

All national banks are required to be members of the Federal Reserve bank of their district and to invest in the capital stock of the bank as required by the Federal Reserve Act of 1913, which requires that 6 percent of the national bank's capital and surplus must be pledged and 3 percent deposited as payment. National banks are further required to be insured by the Federal Deposit Insurance Corporation (FDIC).

National banks have 20 enumerated, general powers, which are effective upon the execution and filing of the articles of association and the organization certificate. Such powers include the obvious—receiving and loaning money—as well as the obscure—providing travel services for customers. National banks are granted general corporate powers, which include making contracts, suing and being sued, electing and appointing directors, and prescribing bylaws. They are also allowed to establish branch offices in the United States and abroad, under specified conditions. They conduct a range of activities involving real estate, U.S. government securities, the establishment of trusts, and other financial activities. Such broadly construed powers enable national banks to engage in far more than strictly commercial banking.

Commercial banks may be classified as either unit or branch banks. In the United States, unlike other countries, banks of both types...