Chartered banks are approved by national governments to process payment transfers that would otherwise be handled by central banks. They can handle payments for government agencies and national benefit programs, and help create an accounting record that is secure and less likely to be tampered with. These banks must meet specific criteria set by the government and undergo regular audits to maintain authorization.
A chartered bank is a financial institution that has been approved by a national or federal government to process various types of payment transfers that would otherwise be handled exclusively by the central bank or central payment agency operated by that government. Essentially, any bank approved for the purpose of handling decentralized payment transfers is given the ability to write checks for specific government agencies, including any type of national benefit programs the nation offers to retirees and others. The criteria to be recognized as a licensed bank will vary somewhat from country to country, depending on the banking laws that apply in that particular nation.
It is not unusual for a licensed bank to manage payment transfers related to a specific function of one or more government agencies. For example, one of these types of banks may be empowered to handle the processing of payments from a national government to state or provincial governments as part of the financing for various types of projects at the state level. In other cases, a chartered bank may serve as a vehicle for issuing funds that are in turn disbursed to individual citizens covered by various types of compensation plans, such as veterans receiving benefits or retirees receiving some type of federal government pension. .
By creating a network of chartered banks that help manage the orderly distribution of funds from a national government to various jurisdictions within the country or to a program that in turn provides benefits to citizens, essential tasks are assigned in a way that expedites the timely receipt of those disbursements. The process also helps create an accounting record that is relatively easy to follow and provides a means of keeping transfers secure and less likely to be subject to diversion or tampering. While this process is often multi-layered, it is those layers that help preserve the integrity of transactions and minimize the opportunity for funds to be used for any purpose other than their intended purpose.
The licensed banking network within a given country will generally require participating banks to meet specific criteria set by the national government. Regular reviews and audits help ensure that banks remain compliant and can maintain authorization. Qualifications to receive these types of responsibilities will vary, depending on the current structure of banking and finance laws within that particular country.
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