The dual banking system

In 1863, Congress passed the National Bank Act in an attempt to retire the greenbacks that it had issued to finance the North's effort in the American Civil War. This opened up an option for chartering banks nationally. As an additional incentive for banks to submit to Federal supervision, in 1865 Congress began taxing any issue of state bank notes (also called "bills of credit" or "scrip") a standard rate of 10%, which encouraged many state banks to become national ones. This tax also gave rise to another response by state banks -- the invention of the demand deposit account, also known as a checking account. By the 1880s, deposit accounts had changed the primary source of revenue for many banks. The result of these events is what is known as the "dual banking system."

The dual system of banking has survived to this day. New banks may choose either state or national charters (a bank also can convert its charter from one to the other). Until 1989, banks with national charters (national banks) were required to participate in the FDIC, while State Banks either were required to obtain FDIC insurance by state law or they could voluntarily join it (usually in an attempt to bolster their appearance of solvency). After enactment of the Federal Deposit Insurance Corporation Improvement Act of 1989 ("FDICIA"), all commercial banks that accepted deposits were required to obtain FDIC insurance and to have a primary federal regulator (the Fed for state banks that are members of the Federal Reserve System, and the FDIC for "nonmembers").