Everything You Need To Know About Banks For Bankers
Posted on: 2 June 2021
As the name suggests, a bankers' bank is the supreme bank for all the other banks. It is formed by larger and more established banks. The sole purpose of bankers' banks is servicing the charter banks that formed them. Although they do not offer banking services to the general public, these institutions are meant to support community banks.
Understanding the Bankers' Bank
With the help of bankers' banks, smaller-sized community banks can compete favorably with larger banking entities. In the United States, there are not many of these types ofbanks. The first bankers' bank was the United Bankers' Bank in Bloomington, Minnesota that opened in 1975.
Since bankers' banks or central banks — as they are commonly known — are designed to serve commercial banks, they keep their savings for them and loan them when necessary. These banks open accounts for commercial banks and allow them to operate. Through bankers' banks, payments are made and received to and from other banks, respectively. By doing so, they help settle debts between banks and also see to it that banks maintain the minimum balance (cash reserve ratio).
Bankers Bank vs. Credit Unions
A bankers' bank resembles a credit union in many aspects. Both peacefully coexist within the financial services industry, albeit offering different structures and community benefits compared to traditional commercial banks.
In credit unions, members create a pool of money by buying shares in the cooperative. It is these purchases that allow the credit union to offer loans and several other financial products and services to its members.
Some of the services offered by both credit unions and bankers' banks include lending money, accepting deposits, and availing to members a vast range of financial products such as certificates of deposits, debit cards, and credit cards.
The biggest differences, however, lie in the manner in which these entities make money. While banks work towards profit generation for their shareholders, credit unions function as non-profit organizations tailored to serve their members.
Any income generated by credit unions is used in funding projects and services that will benefit its members and the community at large. Credit unions could be small or large depending on the number of participants. Corporations, too, can form credit unions to service their employees and affiliates.
Services Offered by Banks' Banks
Listed below are some of the services that bankers' banks offer:
- Secondary mortgages
- Portfolio accounting
- Safekeeping
- Federal funds
- Lending alternatives
- Investment trading
- Municipal bond underwriting
- Cash letter processing
If the term "bankers' bank" was previously unfamiliar to you, this article will undoubtedly give you a head start. Every country should have at least one central bank to keep the rest of the banks in order.
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