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.

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