non-bank financial institution

(noun)

A financial institution that does not have a full banking license or one that is not supervised by a national or international banking regulatory agency.

Related Terms

Examples of non-bank financial institution in the following topics:

  • Non-Bank Financial Institutions

    • A non-bank financial institution offers customers bank-related services such as payday lending, cashier's checks, and check cashing.
    • A non-bank financial institution (NBFI) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency.
    • NBFIs facilitate bank-related financial services, such as investments, risk pooling, contractual savings, and market brokering.
    • The international development community, with a vision it calls "financial sector deepening," is promoting the extension of diverse financial services by a wide range of bank and non-bank financial institutions to ever larger numbers of low-income and middle-class households around the world.
    • But these short-term financial fixes can cost you big bucks because they are ostensibly high-cost loans.

  • Financial Innovation

    • Financial markets and institutions continually change and evolve, and financial innovation can drive this change.
    • The U.S. and state governments have always heavily regulated their financial institutions.
    • Consequently, these institutions ingeniously circumvented these regulations by creating new financial instruments or new financial institutions.
    • Allowing banks to participate in non-financial activities is called universal banking.
    • Bank holding company can raise non-deposit funds.

  • Depository Institutions

    • Commercial banks are the largest and dominate the depository institutions.
    • Savers have three reasons to deposit their savings in a bank than invest directly into the financial markets.
    • Banks hire financial specialist who monitors investments.
    • During the early 1980s, many savings institutions experienced financial crisis because of higher interest rates.
    • Currently, savings institutions are similar to banks, except different government agencies regulate the savings institutions.

  • The United States Banking System

    • A charter is a document that legally establishes a corporation and allows a financial institution to participate in banking activities.
    • When a bank encounters financial difficulties and cannot receive a loan from other financial institutions, then the bank can ask the Fed for a loan.
    • Different institutions evolved in the United States that differ from commercial banks.
    • They include savings institutions and credit unions, and they are not commercial banks.
    • Financial system, such as a bank can be very complicated.

  • The World Bank

    • The World Bank is an international financial institution that provides loans to developing countries for various programs.
    • The World Bank is an international financial institution that provides loans to developing countries for capital programs.
    • The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), whereas the former incorporates these two in addition to three more: International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes (ICSID).
    • The International Bank for Reconstruction and Development (IBRD) has 188 member countries, while the International Development Association (IDA) has 172 members.Each member state of IBRD should be also a member of the International Monetary Fund (IMF), and only members of IBRD are allowed to join other institutions within the Bank (such as IDA).
    • For the poorest developing countries in the world, the bank's assistance plans are based on poverty reduction strategies; by combining a cross-section of local groups with an extensive analysis of the country's financial and economic situation, the World Bank develops a strategy pertaining uniquely to the country in question.

  • The Glass Steagall Banking Act

    • Even a financially healthy bank could fail if people spread rumors the bank has financial troubles.
    • Many people cannot gauge the financial health of banks.
    • The FDIC charges insurance premiums based on the total amount of deposits at the bank and the risk level the depository institutions pose to the FDIC.
    • Many banks are experiencing financial difficulties that resulted from the 2008 Financial Crisis because the banks approved anyone for a mortgage.
    • Thus,the financial crisis caused 140 banks to fail during 2009, causing financial difficulties for the FDIC.

  • The Special Case of Banking

    • Now, if a bank appears to be in financial trouble, depositors no longer have to worry.
    • The government responded by giving banks greater freedom to offer consumers new types of financial services.
    • As with laws deregulating transportation, telecommunications, and other industries, the new law was expected to generate a wave of mergers among financial institutions.
    • By the 1980s, many depositors started seeking higher returns by putting their savings into money market funds and other non-bank assets.
    • In 1989, Congress and the president agreed on a taxpayer-financed bailout measure known as the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

  • Answers to Chapter 2 Questions

    • Financial disintermediation is depositors withdraw their deposits from financial institutions and invest directly into the financial markets because the financial markets offer a better return and/or reduce risks.
    • A contagion is one bank run leads to other bank runs, even for financially healthy banks.
    • A financial panic is a wave of bank failures that push a society into a severe recession.
    • A government wants a stable financial system and financial institutions to disclose accurate information.
    • Banks offer MMDA while financial companies offer MMMF.

  • Institutions, Markets, and Intermediaries

    • A financial intermediary is an institution that facilitates the flow of funds between individuals or other economic entities.
    • A financial intermediary is an institution that facilitates the flow of funds between individuals or other economic entities having a surplus of funds (savers) to those running a deficit of funds (borrowers).
    • Banks are a classic example of financial institutions.
    • Though, perhaps the most well-known of financial intermediaries, banks represent only one intermediary within a larger group.
    • Banks convert deposits to loans and thereby increase access to capital by serving as a financial intermediary between savers and borrowers.

  • Becoming an International Bank

    • Method 1: The U.S. bank opens a bank branch in a foreign country.
    • U.S. banks open branches in financial centers around the world or places where U.S. firms and corporations engage in business.
    • Bank branches help the bank transfer money across nations' borders.
    • Agency office is similar to a nonbank bank, and it circumvents the numerous U.S. banking regulations because the legal definition of a bank is an institution that accepts deposits and grants loans.
    • If the institution stops granting loans or stopsaccepting deposits, then legally the institution is no longer a bank.