The thirty thousand banking institutions in the United States may be classified according to the following principles: (1) legal status, (2) economic function, (3) operating method, (4) customers' control, (5) territorial activity. As it has not been mandatory until recent years for bankers to secure the authority of law before beginning to operate their business, there are still many private or unincorporated banks. However, the vast majority are chartered under the laws of the various states or the national government. So in a general way banks may be grouped as either private or public. These terms, of course, refer only to the subject of incorporation and imply no difference in ownership, for American banks are universally operated by private capital. One exception is the Bank of North Dakota, which is operated by state funds and is therefore a publicly owned enterprise.

Public or incorporated banks exist by virtue of charters either passed as special acts of a legislative body or issued under the general incorporation laws of the government. In the United States the granting of special charters soon gave way to a system which permitted any group of individuals to enter the field of banking if they complied with the regulations of the general incorporation law. Such a statute was enacted first in New York and was later copied by the Western states. Finally, in 1863 Congress provided for the federal chartering of banks under a general law known as the National Bank Act.

A second classification of banks rests upon the economic function which they perform. One class of financial institution gathers the savings of the community and provides business enterprises with permanent capital represented by stocks, bonds, or notes. A considerable part of these funds will be applied to erecting factories, extending railways, and developing other permanent aids to production. Investment banks supply industry with these long-term funds, while on the other hand commercial banks to a large extent furnish short-term credit, enabling the business man to purchase materials, pay his employees, and meet his current expenses.

A third basis for classifying banking institutions rests upon their method of operation. One group receives deposits and through them obtains the funds which it employs in making loans. Other banking institutions accept no deposits, but finance business undertakings by acting solely in the capacity of middlemen between borrowers and lenders.

A fourth basis of classification is based upon the control of the bank. It is usually operated precisely as an ordinary business enterprise, in which customers have no control over management. While the depositor may at times be a stockholder or even a director, he usually exercises no influence over the policies of the bank. Certain other institutions, however, are co-operative in nature and are designed to extend loans mainly to their own members.

Banks may also be grouped as domestic or foreign, depending upon the territory in which they conduct their operations.

These five methods of classification are by no means of equal significance. The legal structure of a bank exerts small influence on the nature of its business, for it matters little whether or not it is incorporated. As only a few banks are co-operative in nature, the question of customers' control requires only brief attention. Also there is no essential difference in the nature of a bank whether engaged in financing foreign or domestic business. Thus consideration need be given only to the economic function and the operative method of banking institutions. They will all be briefly viewed in this chapter, while intensive study will later be given to the more important types, such as commercial, investment and savings banks and trust companies.