Difference Between Banking and Non Banking Finance Companies

Depending on the type, non-banking financial companies provide some of the same services as banks. They include a wide variety of businesses, from investment banks to pawn shops. The main thing distinguishing them from banks is that they can't take customer's deposits.

  1. Banks

    • Banks accept customers’ deposits kept in checking or savings accounts, issue pay checks, and channel their customers’ money into investments. They make profit from charging interest on loans and from charging for their services. Banks are not allowed to lend all their money--they have to keep some in their reserves--so that in normal circumstances, customers can get their money at any time.

    Non-Bank Financial Companies

    • Non-banking financial sector includes a wide variety of companies. Investment and merchant banks deal in stocks and raise capital for firms, venture capital companies provide initial funds for promising businesses, insurers provide insurance to companies and individuals and so on. On the other end of the spectrum are exchange offices, pawn shops and check cashing offices.

    Main Differences

    • The main advantage of banks over non-banking companies is that they provide a wide variety of financial services under one roof. On the other hand, non-banking financial companies focused on one or just a few related services, often offer more competitive rates than banks. Also, they are more willing to enter deals or work with customers banks consider too risky.

    Credit Unions and S&Ls

    • Apart from their ownership structures, credit unions and savings and loan associations in the United States, as well as building societies and co-ops in the United Kingdom are much closer to typical banks than to non-banking financial companies.

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