A banking licence is a legal prerequisite for a

financial institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...

that wants to carry on a banking business. Under the laws of most jurisdictions, a business is not permitted to carry words like a ''bank'', ''insurance'', ''national'' in their name, unless it holds a corresponding licence. Depending to their banking regulations, jurisdictions may offer different types of banking licences, such as * full banking licenses for general banking activities, such as taking deposits from the general public * international banking licences (offshore banking licences), which prohibits any local business activities * non-banking financial institution (

NBFI A non-banking financial institution (NBFI) or non-bank financial company (NBFC) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFC facilitate ba ...

) is an institution that provides financial services but has to comply with fewer regulations than one with a full banking licence.

License issuance

Licenses are typically issued by a national banking regulator to applicant corporations that meet its banking requirements. The requirements may include minimum capital requirements, minimum number of directors, residence of shareholders, spread of shareholdings, disclosure of beneficial shareholders, besides other matters. These requirements may differ between jurisdictions, and may differ depending on the type of license being sought. Some jurisdictions, sometimes called

tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

s, have a reputation for lax or corrupt standards in bank licensing, granting a license, for example, to

shell companies A shell corporation is a company or corporation that exists only on paper and has no office and no employees, but may have a bank account or may hold passive investments or be the registered owner of assets, such as intellectual property, or ...

, or to companies with

nominee director A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organi ...

s, or with dummy shareholders, etc. The granting of the license may involve a long, complex and expensive procedure, which may depend on the type of bank license being sought. There are a number of sectors in which banks may be involved. The general bank license allows a bank to engage in all banking activities, such as

retail banking Retail banking, also known as consumer banking or personal banking, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking. Banking servi ...

, merchant acquiring, cash management,

asset management Asset management is a systematic approach to the governance and realization of value from the things that a group or entity is responsible for, over their whole life cycles. It may apply both to tangible assets (physical objects such as buildings ...

and

trading Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. An early form of trade, barter, saw the direct exchan ...

. An applicant can apply for a limited banking license, such as an

offshore bank An offshore bank is a bank regulated under international banking license (often called offshore license), which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulation and ...

ing license.

Banking licenses in the United States

Most state legislatures in the United States ban general corporations from accepting banker's deposits, which covers any service where a general corporation acts as a funds drawee that transfers current funds (i.e., credit payable upon demand) to make payments as a substitute for coins on behalf of an account holder. Historically, in some states, this ban did not extend to a sole proprietor acting as a banker. One argument for justifying the policy of requiring banking licenses under the

U.S. Constitution The Constitution of the United States is the supreme law of the United States of America. It superseded the Articles of Confederation, the nation's first constitution, in 1789. Originally comprising seven articles, it delineates the natio ...

is that bankers credit sometimes interferes with the regulation of the value of coins, and therefore it is necessary and proper to make laws which regulate banking.

U.S. states In the United States, a state is a constituent political entity, of which there are 50. Bound together in a political union, each state holds governmental jurisdiction over a separate and defined geographic territory where it shares its sove ...

tend to include a license to conduct the banking business as part of the standard terms of the corporate franchise in the state bank charters of incorporation. The license may be implied by a reference in the charter application to the bank being created "under" the state banking law. Federal depository institutions such as

National Bank In banking, the term national bank carries several meanings: * a bank owned by the state * an ordinary private bank which operates nationally (as opposed to regionally or locally or even internationally) * in the United States, an ordinary p ...

s, or

federally chartered A congressional charter is a law passed by the United States Congress that states the mission, authority, and activities of a group. Congress issued federal charters from 1791 until 1992 under Title 36 of the United States Code. The first charte ...

credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...

s derive their authority from federal statutory charter law. Opening or operating a bank also requires regulatory compliance, which may include

Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cred ...

(FDIC) approval for coverage and opening an account at a

Federal Reserve Bank A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve A ...

(or otherwise establishing a facility to settle checks via settlement with Federal Reserve Bank issued credit). If a bank wishes to perform any substantial

fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...

services, such as trust department services, or acting as a

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

holding

intermediary An intermediary (or go-between) is a third party that offers intermediation services between two parties, which involves conveying messages between principals in a dispute, preventing direct contact and potential escalation of the issue. In l ...

, then the bank must apply for an additional special license for trust powers. Depending on the specifics of the bank charter, these licenses are available variously from FDIC,

Federal Reserve Board of Governors The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement the mon ...

, or state regulators. Another option for such a bank is to create a State-chartered Trust Company and hold it as a subsidiary corporation.

References

{{DEFAULTSORT:Banking License Bank regulation

License issuance

Banking licenses in the United States

See also

References