DEFINITION of 'Nonbank Banks'

Financial institutions that are not considered full-scale banks because they do not offer both lending and depositing services. Nonbank banks can engage in credit card operations or other lending services, provided they do not also accept deposits.

The Bank Holding Company Act of 1956 prohibits nonbank companies from owning banks as subsidiaries, but they may own other nonbank banks.

BREAKING DOWN 'Nonbank Banks'

Many nonbank banks that allow deposits are insured by the FDIC and reserve requirement restrictions will apply to these institutions. Nonbank banking has expanded greatly in recent years, as non-financial institutions such as retail companies and auto makers have entered the lending business.

Because many companies try to stretch the rules on banking rights, the U.S. government has massively restricted new chartering of nonbank banks since the late 1980s.

RELATED TERMS
  1. Non-Banking Financial Company - ...

    Non-banking financial companies, or NBFCs, are financial institutions ...
  2. Emergency Credit

    A loan given by a federal reserve bank to a non-bank institution ...
  3. Regulation Y

    Federal Reserve action regulating corporate bank holding company ...
  4. Shadow Banking System

    The financial intermediaries involved in facilitating the creation ...
  5. Financial Holding Company (FHC)

    A financial institution engaged in nonbanking activities that ...
  6. Financial Institution - FI

    An establishment that focuses on dealing with financial transactions, ...
Related Articles
  1. Investing

    Nonbanks Overtake Banks as Top Mortgage Issuers

    As banks retreat from lending to more risky borrowers, nonbanks have stepped in and now make up the bulk of all mortgage issuance.
  2. Financial Advisor

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  3. Investing

    PIMCO Report: European Bank Outlook

    Find out how the European banking industry is faring under the Bank Recovery and Resolution Directive (BRRD) and the investment opportunities it has created.
  4. Personal Finance

    Retail Banking Vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers.
  5. Investing

    What is a Bank?

    A bank is a financial institution licensed to receive deposits or issue new securities to the public.
  6. Investing

    What's a Non-Banking Financial Company?

    A non-banking financial company, or NBFC, does not hold a banking license, yet it still provides many banking services.
  7. Insights

    Overnight Rate

    Learn about how banks use this interest rate when lending to other banks.
  8. Investing

    Introduction To The Chinese Banking System

    As China steps into a greater role in the global economic system, their banking system continues to evolve.
  9. Insurance

    How the Federal Deposit Insurance Corporation (FDIC) Works

    Learn more about the Federal Deposit Insurance Corporation (FDIC) and what happens to your deposits over $250,000 if a member bank fails.
  10. Insights

    What Do the Federal Reserve Banks Do?

    These 12 regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy and provide payment services.
RELATED FAQS
  1. Can entities other than banks issue letters of credit?

    Obtaining a letter of credit from a non-bank is legally acceptable according to the ICC, but companies tend to prefer to ... Read Answer >>
  2. What are the major categories of financial institutions and what are their primary ...

    Understand the various types of financial institutions that exist in today's economy, and learn the purpose each serves in ... Read Answer >>
  3. Can I roll the funds in an SEP-IRA over to a profit-sharing plan or self-directed ...

    Yes. Funds can be rolled over from an SEP IRA to a profit-sharing plan, provided the plan document that governs the profit-sharing ... Read Answer >>
  4. What economic indicators are important to consider when investing in the banking ...

    Find out which economic indicators are most useful for investors in the banking sector, especially those influenced by central ... Read Answer >>
  5. How does the deposit multiplier affect a bank's profitability?

    Find out how a deposit multiplier affects bank profitability, how it increases the supply of money in the economy and why ... Read Answer >>
  6. What is the difference between an investment and a retail bank?

    Learn the primary differences between retail banks and investment banks by examining the business activities, type of clients ... Read Answer >>
Hot Definitions
  1. Co-pay

    A type of insurance policy where the insured pays a specified amount of out-of-pocket expenses for health-care services such ...
  2. Protectionism

    Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local ...
  3. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  4. Demonetization

    Demonetization is the act of stripping a currency unit of its status as legal tender and is necessary whenever there is a ...
  5. Investment

    An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic ...
  6. Redlining

    The unethical practice whereby financial institutions make it extremely difficult or impossible for residents of poor inner-city ...
Trading Center