What Is A Bankers Bank?

Everyone knows that banking is a very vast field and they offer various services that people aren't usually aware of. Among them one thing that confuses a lot of people and they ask that what is a bankers bank. It is basically a kind of bank that is created by banks who are large and well established. The reason for the existence of a bankers bank is to be of service to the charters bank that created them. It is important to know that the services of a bankers bank aren't open to the public in any criteria as they are specifically designed to help and support community banks.

 

 

Understanding a bankers bank

Since the bankers bank is not open to the public in any fashion, they are formed to help and support community banks in competing effectively with larger banking entities. The first bank was opened in 1975 by the name of United Bankers Bank in Bloomington, Minnesota. There are only a handful of bankers banks in the whole nation.

Credit unions and bankers bank

People who are aware of thebankers bank usually think that credit unions and bankers banks are the same. To be fair, there are numerous similarities between the two of them. They both exist and work in the financial services industry but they provide multiple structures and community benefits than the rest of the commercial banks working traditionally.

When we talk about credit unions, its members pool their cash through buying shares in the cooperative. Due to these buy-ins, they are able to provide loans, demand deposit accounts, and various financial services and products to their members.

Well mostly, banks and credit unions provide very similar services like accepting deposits, lending money, and benefitting members by providing them different financial products such as credit card, debit card, etc. While they are similar in a lot of ways, the main difference between the entities is how they generate and make money. In this difference, the banks will function to generate and earn profit to provide it to their shareholders, whereas the credit unions are different since they are operating as a not-for-profit firms that are specially initiated to serve its members. Generally, credit unions generate any type of income to help in funding projects and services that are beneficiary to the community and are in the interests of their members.

There is a huge range in a credit union as they might be either small working as volunteer-only operations to large institutes that include thousands of participants. Another thing that big corporates and some other entities do is form their own credit unions to help their employees and affiliates. 

 

 

Bankers bank function of central bank

Since the central bank is the apex bank, it works as a banker to other banks in three different capacities which are as follows:

1.      They are known to be the guardians of their cash reserves. Any bank in the country is required to keep a certain percentage of their total deposits under the central bank which is commonly known as a cash ratio. This is how the central bank acts as a guardian to the cash reserves of community or commercial banks in the country.

2.      Since the central bank is a provider of its last resort, it offers and provides loans to commercial banks in case every other way of raising funds isn't available practically.

3.      The central bank also acts as a bank of central clearance, transfers and various settlements. Since every bank has and will keep an account with the central bank, it can feasibly settle different claims that banks usually make against each other by generating debit or credit entries in their accounts. The control and regulation of commercial banks is in the hands of the central bank since they take care of commercial banks licensing.