DEFINITION of Bankers' Bank
A bankers' bank is specific type of bank that a group of larger, more established banks create. Bankers' banks exist for the purpose of servicing the charter banks that founded them. While their banking services are not generally open to the public in any fashion, these institutions are designed to support community banks.
BREAKING DOWN Bankers' Bank
Bankers' banks can help community banks to effectively compete with larger banking entities. The first bank of this kind was created in 1975 in Minnesota. There are currently 22 of these entities nationwide that serve over 6,000 community banks in 48 states.
Bankers' Bank and Credit Unions
In many ways, a bankers’ bank is similar to a credit union. Both exist well within the financial services industry but offer different structures and community benefits than more traditional commercial banks.
In a credit union members pool their money by purchasing shares in the cooperative. These buy-ins allow the credit union to provide loans, demand deposit accounts, and other financial products and services to its members.
Credit unions and banks do offer similar services, such as accepting deposits, lending money and providing members with a range of other useful financial products (credit and debit cards, Certificates of Deposit, etc.). At the same time key differences exist in how both entities make money. The biggest difference is that banks function to generate profits for their shareholders, while credit unions operate as not-for-profit organizations designed to serve their members. Credit unions will generally use any income generated to fund projects and services that will benefit the community and interests of its members (de-facto owners).
Credit unions range from small, volunteer-only operations to large entities with thousands of participants. Corporations and other entities can also form their own credit unions for their employees and affiliates.
Example of a Bankers' Bank
One example is the aptly named Bankers’ Bank, with its headquarters in Madison, Wisconsin. This institution is state chartered and previously held the name of Bankers Bank Of Wisconsin prior to changing to simply Bankers' Bank in September 1993. Bankers’ Bank now offers a large variety of products, including secondary mortgages, safekeeping and portfolio accounting, lending alternatives, federal funds, cash letter processing, municipal bond underwriting, investment trading, and more.
The mission of Bankers’ Bank is “to enhance the value of community based financial institutions by delivering the highest quality products and services at competitive pricing, while providing a return to shareholders.”
Since Bankers' Bank is not a retail bank, it not compete with clients for market or charters.