Permissible Non-Bank Activities
What Are Permissible Non-Bank Activities?
Permissible non-bank activities are lines of financial business that can be conducted by bank holding companies or financial holding companies (FHCs), yet not by traditional banks since they are considered sufficiently close to banking to be acceptable by the regulators. Bank holding companies can either participate in the businesses straightforwardly or through subsidiary firms.
Common instances of permissible non-bank activities are ownership or operations in consumer finance and brokerage services. The Federal Reserve, the U.S. regulator of bank holding companies, must audit the planned non-bank businesses before the companies are permitted to offer them.
How Permissible Non-Bank Activities Work
Traditional bank activities incorporate taking deposits; making personal, home (mortgage), and business loans; and offering check-composing, safety deposit, savings, and bill paying services. Over the movement of the banking industry in the last couple of many years, a number of services outside the traditional core set of activities have developed to serve customers.
Bank holding companies have looked to become "one-stop shops" for their customers, who are confronted by a proliferation of new products and services. These activities might be permissible in light of the fact that they are digressive and maybe even synergistic with core banking services.
Citigroup, Capital One, JPMorgan Chase and Co, T.D. Endlessly bank of America are undeniably operated by holding companies. Subsequently, they are able to offer different non-bank activities to their customers.
Benefits to Both Bank and Customer
Non-bank activities permitted by regulators produce more revenues for a bank. A majority of revenues come as net interest margin, however a material portion is derived from fees and commissions on non-loaning activities. This type of revenue assists with adding a ballast to a bank's operations all through interest rate cycles.
As insinuated over, the customer has an option to sort out her financial life under one rooftop. Likewise, by dealing with a single bank, she will probably benefit from decreased or postponed fees or particular interest rates on loans. A financial company may likewise offer certain arrangements or advancements to encourage existing customers to sign on for extra non-bank services, for example, getting an interest bonus in their bank accounts by opening a brokerage account or buying insurance.
Illustration of Permissible Non-Bank Activities
For instance, suppose a consumer has a checking account at a bank. The institution might offer her a certificate of deposit (CD) account as an element of the singular's overall savings plan alongside a brokerage account that the bank can offer to her. These offerings are extra permissible non-bank activities.
Other permissible non-bank services that may likewise be offered to that bank customer are wealth management, credit and debit cards, and insurance or annuity products.
Features
- Permissible non-bank activities are a set of capabilities that financial holding companies can participate in, however which traditional banks can't.
- Financial holding companies that can perform these activities are viewed as a "one-stop-shop" for financial services.
- These incorporate activities like insurance underwriting, securities dealing, and investment advisory or brokerage services.
