authorized to operate by the federal government through the U.S. Depart-
ment of Treasury. One of the reasons Congress created a banking system
that issued national currency was to finance the Civil War. Although na-
tional banks no longer issue currency, they continue to play a prominent
role in the nation’s economic life. It is important to understand that banks,
be they state chartered or national, are empowered to issue credit facilities
that carry the same effect of issuing currency, but only in terms of credit and
in the form of a promissory note against the borrowers, as discussed in
Chapter 5.
National Banks
Congress has established a number of long-range goals of for the national
banking system in America. These are:
&Supporting a stable national currency
&Financing commerce
&Acting as private depositories
&Generally supporting the nation’s economic growth and developmentThe realization of these goals required a type of bank that was not just
safe and sound, but whose powers were dynamic and capable of evolving so
that national banks could perform their intended roles, well beyond the
Civil War. Key to these powers is language set forth in12 U.S.C. § 24 (Sev-
enth), which provides that national banks are authorized to exercise:
... all such incidental powers as shall be necessary to carry on the
business of banking; by discounting and negotiating promissory
notes, drafts, bills of exchange, and other evidences of debt; by re-
ceiving deposits; by buying and selling exchange, coin and bullion;
by loaning money on personal security; and by obtaining, issuing,
and circulating notes.
The national banking system demonstrates the value of applying
nationwide standardization by introducing uniform national banking stan-
dards to banking activities and products.
State Banks
After the establishment of the United States, each state of the union kept a
state-run banking system that was supervised by the individual state bank-
ing department. These state banking laws and regulations do not necessarily
coincide and are not necessarily similar to the national banking system.
The Conventional Riba-Based Banking System 157