What Is A Bank For Bankers And What Does It Do?
Posted on: 2 August 2021
In the United States, a bank for bankers is one established to serve community banks. This type of bank aims to provide financial services to community banks and not individual and corporate customers.
Bankers' banks take advantage of economies of scale to provide top-notch financial services to community banks. Typically, community banks wouldn't have access to these services since they haven't grown to the level of the enormous national and multinational banks.
In essence, the benefits of a banker's bank to community banks include enjoying top-notch services that are usually only available to the largest banks. In turn, the community banks provide high-quality financial services to their customers. Because of their membership with the banker's bank, community banks get to compete with the national and multinational banks on an equal footing.
The Origin of a Bank for Bankers
The first bankers' bank in the United States was the United Bankers' Bank, established in 1975 in Minnesota. A bank for bankers provides services such as deposit accounts and loans to local community banks. Therefore, a bank for bankers has an extensive capital base that makes it possible to spread the risks for the member community banks. In turn, the community banks can afford to provide financial services at more affordable rates.
According to the Legal Information Institute of Cornell Law School, the bank for bankers was formalized through the Federal Reserve Act of 1980. Thus, Federal authorities require banker's banks to maintain a reserve if they take nonpersonal time deposits and maintain transaction accounts. Exemptions apply to those institutions established to solely serve other financial institutions, are owned by their member financial institutions, and do not serve the general public.
Services Offered by a Bank for Bankers
Banks for bankers are typically different from traditional commercial banks in the way they operate and their financial services. While commercial banks serve individual and corporate customers, banker's banks deal only with member community banks. They provide services such as:
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loans to community banks
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demand deposit accounts
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certificates of deposit
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valuables and documents safekeeping
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secondary mortgages
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portfolio accounts
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federal funds
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investment trading
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cash letter processing
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federal funds
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municipal bond underwriting
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credit and debit cards
Conclusion
In conclusion, a bank for bankers is an institution established by community banks to provide them with financial services. It has a high capital outlay that makes it possible for community banks to spread out risks and provide financial services at affordable rates. Since the legal recognition through the Federal Reserve Act of 1980, bankers' banks now offer several financial services.
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