However, the state banking laws and regulations are essentially the same as
those of the national banks. State banks are usually small in size compared
to national banks; however, there are national banks that are small, with
capital of as little as $5 million and total assets of as little as $25 million,
and state banks that are large, with capital that can exceed $20 million and
assets that may exceed $100 million. It is important to note that state banks
can, in general, only operate in the state where they are chartered, while
national banks can operate, within regulations, in all states.
To avoid the potential of a conflict that would arise from a particular
state regulating a national banking institution that is regulated by the fed-
eral government, a dual banking system was invented:
It has been a bedrock precept of our [the United States’] constitu-
tional law for more than 180 years, since the Supreme Court’s deci-
sion in M’Culloch v. Maryland in 1819, that states cannot
constitutionally control the powers of entities created under Fed-
eral Law. Courts have consistently applied this principle over the
years to national banks, holding a variety of state laws inapplicable
to national banks, and finding that the federally authorized powers
of national banks are not subject to state supervision and
regulation.^2In 1861, Secretary of the Treasury Chase recommended the establish-
ment of a system of federally chartered national banks, each of which
would have the power to issue standardized national bank notes based on
United States bonds held by the bank. In the National Currency Act of
1863, the administration of the new national banking system was vested in
the newly createdOffice of the Comptroller of the Currency, or OCC, and
its chief administrator, theComptroller of the Currency.^3 The law was com-
pletely rewritten and re-enacted as the National Bank Act.^4 That Act autho-
rized the Comptroller of the Currency to hire a staff of national bank
examiners to supervise and periodically examine national banks for safety
and soundness. The Act also gave the Comptroller authority to regulate
lending and investment activities of national banks.
Distinctions between the national banking system and the state banking
system are rooted deep in constitutional principles and the history of the
United States. These distinctions are essential to the vitality of the dual
banking system and are encouraged.
The OCC booklet^5 on the dual system states that each component of the
dual (state and national) banking system makes different, positive contribu-
tions to the overall strength of the U.S. banking system. In defense of the
value and contribution of thestate banking system, state bank supervisors
158 THE ART OF ISLAMIC BANKING AND FINANCE