Banking license
A banking license is a prerequisite for a financial institution that wants to provide banking services including fractional reserve lending. Under most jurisdictions the fundamental banking activities, such as taking deposits from the general public are exclusive to holders of a banking license. A non-banking financial company is an institution that provides financial services without meeting the legal definition of a bank, such as holding a banking license.[1]
License issuance
Licenses are typically issued by the banking regulatory body in which the bank is established. There is a relatively long and complicated procedure that goes into the application. This procedure will also depend on the type of bank license that you wish to apply for. Licensing is generally broken down into different categories, while each category has a different specialization, and a different time frame involved in the banking license application process.
Due to the number of different sectors in which banks may be involved, there are also bank licensing packages available. The main bank license is the one that allows the bank to engage in all of the activities that one would expect a major bank to partake in, including retail banking, merchant acquiring, cash management, asset management and trading. Obtaining a bank license that allows you to engage in all of these activities will generally take the longest, and cost the most. Additionally, however, you can apply for one that has fewer or even only one specialization.[2]
Banking licenses in the United States
Most state legislatures in the United States ban general corporations from accepting banker's deposits, which ban tends to cover any service whereby a general corporation acts as a funds drawee which transfers current funds (i.e. credit payable upon demand) to make payments as a substitute for coins on behalf of an accountholder. 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 US Constitution 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.
US states tend to include a license to conduct the business of banking 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 Banks, or federally-chartered credit unions derive their authority from federal statutory charter law. Opening or operating a bank also requires regulatory compliance, which may include FDIC approval for coverage and opening an account at a Federal Reserve Bank (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 services, such as trust department services, or acting as a securities holding intermediary, 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, or State regulators. Another option for such a bank is to create a State-chartered Trust Company and hold it as a subsidiary corporation.
