What is the difference between a State vs Federal Chartered Bank

A lot many people are confused as to what the main difference is between a State Charted Bank and a Federally Chartered Bank. Yes, there are many varying nuances, but there is one very important point that is perhaps the only point worth noting.


Have you ever wondered what is the difference between a state chartered bank and a federally chartered bank? Hello. My name is Faisal Khan and I’m a banking and a payment consultant and I’ll be answering this question today.

A state chartered bank is basically a bank that maybe chartered, licensed in a particular state. Let’s say there’s a bank that is chartered in the state of Florida, and if that bank wants to open a branch in let’s say Miami, it simply informs the regulator in Florida and opens a branch in Miami and they don’t need to get any additional licenses etc. They simply need a permit, you know, simply need to inform the state regulator of the permission that they’re opening an account, branch there.

Now if the same bank that is actually chartered out of Florida tries to open a branch in let’s say Chicago, they cannot. The reason they cannot is that they are not licensed in the state of Illinois and they need to then go to the state of Illinois’ Department of Banking and Finance and get a banking license from there. Now this is a very important thing to understand. The state chartered bank can pick up customers from all over the United States. There is no restriction on that. There is no restriction that a bank in Florida can only pick up clients in Florida. Not at all. The only restriction is that they can not open a branch outside that state without getting licensed in that state.

A federally chartered bank, let’s say is based in Florida again. Now if they want to open a branch in Miami, same thing, they’ll just open one. But if they want to open a branch in let’s say Chicago or Los Angeles or New York, they open one. Why? Because they’re federally regulated. They do not need a license in every state to go and open a branch because they have a federal mandate, they can operate in all 50 states and three territories without obtaining any additional licenses, and that is the regulatory framework under which they operate. Both banks state and federally chartered can pick up customers from all over the United States.

So, I hope that clears the misconception that people have that somehow state chartered banks cannot pick up customers from elsewhere. That is not true. If that is changed or if you think I’m wrong, please put it on the comments below and I’ll be happy to ask. Until next time. Take care.

This page was last updated on September 1, 2022.

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