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. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  2. Available Balance

    The available balance is the balance in checking or on-demand ...
  3. Multiplier Effect

    The expansion of a country's money supply that results from banks ...
  4. Institutional Investor

    An institutional investor is a nonbank person or organization ...
  5. Term Deposit

    A term deposit is a deposit held at a financial institution that ...
  6. Banking Department

    A state-specific regulatory body that oversees the operations ...
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. Tech

    Can the Banking Industry Defend Itself Against Alternative Lending?

    If it learns to embrace fintech like its non-bank competitors have done.
  3. 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.
  4. Personal Finance

    Retail Banking vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking refers to the aspect of banking that deals with corporate customers.
  5. Personal Finance

    The History Of The FDIC

    Find out why this corporation was developed and how it protects depositors from bank failure.
  6. Insights

    The Role of Commercial Banks in the Economy

    We interact with commercial banks daily to carry out simple financial tasks. That said, the function and creation of a commercial bank is anything but simple.
  7. Personal Finance

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  8. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
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. 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 >>
  3. 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 >>
  4. What impact does the Federal Reserve have on a bank's profitability?

    Learn how the Federal Reserve impacts a bank's profitability with its influence on the discount rate, federal funds rate ... Read Answer >>
  5. Why is my 401(k) not FDIC-Insured?

    Learn about the Federal Deposit Insurance Corporation (FDIC) and whether its protection extends to 401(k) accounts or just ... Read Answer >>
  6. What is the average profit margin for a company in the banking sector?

    Learn what the average profit margin is for companies in the banking sector, along with other evaluation metrics often used ... Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  3. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
  4. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  5. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  6. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
Trading Center