A single-tier banking system is a policy framework under which all credit institutions coexist without distinction about the quality of their liabilities, or in other words, there is no distinction between central bank money and broad money. This setting is generally associated with communist economic systems.
An extreme version of single-tier banking system is the monobank system (a term coined by economist George Garvy[1]: 869 ) in which a single institution centralizes all financial intermediation. The alternative to a single-tier system is a two-tier banking system, in which the central bank is singled out and entrusted with monetary policy, as is presently the case in nearly all of the world's jurisdictions. The move from single-tier to two-tier banking systems has been a key feature of post-communist transitions or, in the case of China, post-Mao economic reform.
References to tiering in the banking sector also exist in other contexts. For example, the Hong Kong Monetary Authority in the 1980s implemented what it calls a three-tier banking system (銀行三級發牌制度) which distinguishes between licensed banks, restricted license banks, and deposit-taking companies.[2] In the European Union, policymakers have referred to the option of a "two tier banking system" in which different supervisory styles apply on account of different risk tolerance thresholds; such an option has been, however, rejected by the European Central Bank in the context of European banking supervision.[3] This is a similar concept to what is generally called "tailoring" in the United States, which came under question following the 2023 United States banking crisis.