3 Things To Know About A Bankers' Bank

If you've heard of a financial institution known as a bankers' bank, you may wonder who this establishment serves and if it's open to the general public. A bankers' bank, also known as a bank for bankers, is a financial institution that renders financial services to other banks. Bankers' banks are large entities owned by investor banks. Here are a few things you need to know about a bankers' bank. 

1. A Bankers' Bank Serves Other Banks

The purpose of a bankers' bank is to serve community banks. Usually, the community banks assisted by a bankers' bank are small and wouldn't be able to compete with larger financial institutions. They simply don't have the space or resources to offer a large menu of financial products. A bankers' bank partners with the smaller banks so that they can provide more financial services to their customers.

For example, a small-town bank that's served by a bankers' bank may be able to provide investment trading, cash letter processing, and a larger variety of loan options due to their partnership. Some of these more specialized services require a lot of resources that smaller banks don't have. 

Since a bankers' bank works with so many banks, it's able to make the cost of some of these products and services more affordable. The smaller bank is then able to better compete against other banks due to the lower costs and expanded selection. 

2. Bankers' Banks Don't Directly Assist Retail Banking Clients 

A bankers' bank isn't set up to serve retail or commercial banking customers; they only function to offer assistance to small banks. If you were looking for wealth management services or needed access to a larger variety of commercial loans, you would work with the community bank served by the bankers' bank, not the bankers' bank. 

One thing to note about a bankers' bank is that they don't try to bring in more retail customers or market their products to potential clients. They don't compete with the small banks that they serve.

Even though bankers' banks don't directly work with bank customers, they play a valuable role for individuals seeking more specialized products. A bankers' bank expands the financial products available to individuals who bank with community banks. 

3. There Aren't a Large Number of Bankers' Banks

Across the US, there are a limited number of bankers' banks. Each bankers' bank serves thousands of smaller financial institutions. Usually, a bankers' bank serves throughout a specific region.