Banker's Bank - Explained
What is a Banker's Bank?
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Table of ContentsWhat is a Bankers' Bank?How Does a Bankers' Bank Work?Bankers' Bank and Credit UnionsExample of a Bankers' Bank
What is a Bankers' Bank?
A bankers' bank is a type of bank that transacts with other banks, this bank only provides financial services to other banks. A banker's bank is often larger than the normal bank, established financial institutions create this type of banks. Unlike commercial banks that render services to the public such as the issuance of loans, acceptance of deposits and others, a banker's bank interacts only with banks and not the general public.
How Does a Bankers' Bank Work?
The services provided by a banker's bank are similar to those offered by traditional and commercial banks. The only difference is that banker's banks do not relate directly with customers, instead, they were created to support other banks. The first banker's bank was established in Minnesota in 1975, this bank provided support for community banks and helped them operate effectively. Presently, there are 22 banker's banks providing support for banks in 48 states.
Bankers' Bank and Credit Unions
The roles of a banker's bank are similar to that of a credit union, however, both have different services they offer and run on different structures. Credit unions and Banker's banks perform higher roles than commercial or community banks. The major difference between these two types of financial institutions is that a credit union is owned by members who pool their funds in the form of deposits to pursue the interest of the union. Also, credit unions are not-for-profit organizations serving the interest of its members, while a banker's bank is aimed at generating profit for shareholders. A credit union can be created by a volunteer organization, employees, associates and affiliates who have the same interest.
Example of a Bankers' Bank
Wisconsin is the most common example of a banker's bank in the United States. This bank was established in 1993 to offer a variety of services to community banks as a way of supporting them and helping them function effectively. Some of the products that Wisconsin offered to other banks at this time include federal funds, secondary mortgage, portfolio accounting, underwriting, investment trading and orders. It is important to note that a banker's bank does not compete with commercial banks for customers, it was clearly established to provide services to other banks.