Organizational Structure of Banks

The organizational structure of banking in the U.S. is more complex than in many other nations due to the existence of both state-chartered and federally chartered banks, and multiple regulatory agencies at both the state and federal levels. In addition, commercial and investment banks may be the same or separate institutions.

The traditional local bank is a small, state-chartered institution that generates loans and provides deposit services for both companies and individual consumers. A small-business owner seeking a loan or a line of credit from a local bank may be able to get a decision from someone he knows in the community rather than a manager strictly following a policy from the corporate office. Many people prefer this type of personalized banking interaction, even if the local bank is no more likely to approve their application.

Traditional local banks are much less common than they used to be, as many regional banks have been bought up by huge national or even international banking corporations. Large banks operate many retail branches, which provide the same basic set of products and services as independent banks. Both independent retail banks and corporate retail branches have similar organizational structures. Tellers handle the everyday business of deposits and withdrawals. Credit analysts crunch the numbers on loan or credit applications so the bank can make a decision. Treasury management associates and treasury analysts oversee customer accounts. Financial sales representatives sell investments to customers in the community. Branch managers oversee the operations of the bank branch as a whole.

Before the repeal of the Glass-Steagall Act in 1999, commercial banks and investment banks were separate institutions. With the repeal of this act, many banks began to perform both functions. That's why retail banks typically have financial services representatives who sell various types of investments. Investment banks are organized into front office, middle office and back office activities. The front office includes investment advice and sales activities, so the financial services rep at the local bank is a front office employee. The middle office handles risk management, regulatory compliance and strategic planning. The back office handles technology and support issues.

Most commercial and investment banks in the U.S. are now part of much larger corporations. Each banking corporation has its own corporate structure, but a typical banking corporation would own a large number of retail branches. The activities at the individual branches are overseen by different department heads responsible for credit, risk management, information technology, legal issues or fiscal control. Each department is overseen by a corporate vice president or vice chairman, who reports to the chairman of the board of directors or the CEO. The board of directors sets the bank's strategic direction on behalf of the shareholders.