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Nonbank Bank

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Nonbank Bank
An institution that provides most banking services without belonging to the Federal Reserve System or receiving a state charter. Nonbank banks do not offer checking accounts per se, but offer credit cards, loans and savings accounts. They developed to circumvent regulations preventing banks from operating in multiple states. They became unnecessary after the passage of the Riegle-Neal Act, which deregulated banks.


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In 1987, Congress closed the loophole by tightening the definition, but allowed states with existing laws authorizing the chartering of industrial loan corporations (a type of nonbank bank that funds itself with insured deposits but does not offer demand deposits) to continue to charter these ILCs.
The general overdraft prohibitions of section 4(f)(3) of the BHC Act are discussed for controlled subsidiary banks of grandfathered holding companies of nonbank banks (those existing on March 5, 1987), including when certain overdrafts are permissible.
Differences in average ROA and ROE for states in the 1980s were influenced by at least two special factors: extraordinarily large provisions taken by large regional and money center banks to cover anticipated losses from loans to LDCs, and the proliferation of generally high-profit credit card banks, other limited purpose banks, and the so-called nonbank banks in states permitting these institutions.
 
 
 
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