This article walks through a couple of facts about the American Banking system. Opening and maintaining an USA bank account and doing financial transactions are essential for a successful USA business. Having said that, it is highly beneficial to understand the basics about Banks in America. This article is targeting new companies entering the American Market Place and helps them to get their business started.
"A bank is a place where they lend you an umbrella in fair weather
and ask for it back when it begins to rain."
(Robert Frost 1874 - 1963)
The USA Banking Market
As many other markets in the United States, the USA banking market is characterized by a large number of market players and many different financial services available. Since any business is about making money, having a trusted USA bank with the right financial services is another foundation of a successful USA business. To work with USA banks effectively, it is beneficial to understand where they are coming from.
History of USA Banks
Back in the middle of the 19th century, the USA banking market was characterized by the fact that privately held banks were issuing their own money. Back in the days, there was no government monopoly for issuing currency, private USA banks had the right to issue their own currency. Thousands of different banks were competing for customers with their own currency. Different bank notes were available and floating around the country. Some of those notes had higher, some of them had lower value and some of those notes had no value since the bank went bankrupt. A free market society par excellence. With a federal centralized system, the government eliminated competition between different currencies and leveled the currency to one federal standard.
Those highly diversified markets with individual standards are still shining through many aspects of today's USA banking system. Wire transfers for example are much less common than in the European Union, since USA banks keep their own standards and are only moving slowly to a standardized system. Writing, sending and receiving checks are playing a very important role in the business world since this is the established way of how money is getting transferred.
USA Banks: the Federal Deposit Insurance Corporation (FDIC)
After the government monopolized the currency, another centralized institution for the USA Banking market was established. With the banking crisis between 1929 and 1933 the government implemented a "Federal Deposit Insurance Corporation" (FDIC). The federally sponsored corporation insures deposits in national banks and certain other qualifying financial institutions up to a stated amount against the risk of financial trouble of the bank. Today most individuals are protected up to $100,000 against bankruptcy of the bank they deposited their money at. So if you plan on having more than $100,000 at the same bank, you may think about establishing a second bank account with a different bank. More information about the FDIC insurance can be found here.
Opening and maintaining a USA bank account
It will be rather challenging for anybody to maintain a business without having a bank account. After we highlighted a few historic aspects about USA banks, we should move to the next step and think about how we are going to establish the bank account for our USA business. Different banks have different regulations on how a bank account can be established. Bank-specific and government regulations usually require some kind of identification to open an USA bank account. These documents can for example include a valid passport, social security number, tax identification number or a U.S. drivers license.
New companies in the United States may not have all docuementation in the first few days of their business available. In this case, it is the easiest to simply talk to the specific bank and ask about their dedicated requirements to open a bank account. A Social Security Number for example is not an official government requirement and many banks are accepting the Tax ID number of your business. Some other banks may accept a foreign passport as identification or your U.S. Visa. It is also helpful to start the relationship with the future bank with a deposit instead of asking for a credit in the first place.
Typically, banks will may also require financial data about your business in order to figure out if you are a trustworthy client. There are hardly any public records available and it is not uncommon that a bank may requests specific financial background information, your companies' statues or LLC/Partnership agreements from you.
Writing and receiving checks
A check is basically a written order directing a bank to pay money. It is used for example by you to pay your suppliers or from your customers to pay your products. But how is a check filled out correctly? If you are in your twenties and grew up for example in Germany, you probably never filled out a check before. Please find below an example about how you would write a check to one of your suppliers.
Performing wire transfers
Wire transfers are the movement of funds from one bank account to another electronically. Wire transfers in the United States are possible, but are not yet widely standardized. As stated earlier, checks are still the major and established way on how companies and individuals move money around within the US. As most other countries, America too is moving towards a cashless society. Surprisingly, wire transfers are not the major influence for that, but rather the paper checks which are simply handled more automated every day. However, with the possibility of moving money around internationally, wire transfers are an accepted method and every bank is offering that service. With some additional information like international routing numbers or SWIFT-codes, any institution will offer that service. However, due to the situation that most people choose checks over wire transfer, the fees involved are often disproportional to the service.
USA Banks: Summary
Outlining the history of the USA banking system is meant to give the reader a better understanding about today's banking market in America. We need to get an USA bank account established in order to do business. It may seem to be little challenging to pick the right financial institution in the USA and to work with specific procedures in the beginning. However, as with most other activities in the United States, it is just about learning a few basic rules and then apply them in day-to-day business transactions in the U.S.
To be continued