The different Types of Banking Institutions

When most of us think of banks we probably picture the standard high street banks, such as Wells Fargo, Bank of America, HSBC, and NatWest. We see their branch infrastructure and know that they offer a range of accounts to personal and small business customers. However, these retail bank models are just one of a variety of flavors of banks and awareness of this has risen as financial commentators have attempted to make sense of the mess that has come to be known as the credit crunch crisis.

Let’s run through the different types of banking institutions. In doing so, though, please bear in mind that often the really big banking groups are comprised of a combination of these types of institutions!

1. High street banks
The familiar face of banking, high street banks offer a range of accounts and services primarily to Personal and Small Business segment customers. Their bread and butter has traditionally been to sell products via their extensive branch networks, although many have now converted to a multi channel business model and use the Internet, Mobile, and Telephony channels to attract and retain customers. Amongst the products that they offer are checking/current accounts, deposit savings accounts, loans, credit cards, and mortgages.

2. Remote channel banks (e.g. Egg, Intelligent Finance)
Characterized by the lack of a branch network, these banks are often labeled as Internet banks. However, they tend to offer customers the ability to transact either via the Internet or telephone. They are often owned by large High street bank groups. For example, Intelligent Finance is owned by the Lloyds TSB Group.

3. Supermarket banks
A number of supermarkets, such as Tesco and Sainsburys, have launched financial service arms in recent years. These banks tend to be set up in partnership, however, with established high street banks.

4. Offshore banks
Offshore banks tend to promote their services to high net worth customers. Customers can take advantage of lower tax regimes to get a better return than they would with a bank that is domiciled in their domestic jurisdiction.

5. Building Societies
Building societies are not banks in the strictest sense of the word, but they offer similar services. Many of the original building societies, such as Halifax, have actually become banks in recent years. Nationwide is an example of a company that has retained its building society status. Building societies are mutual companies which means that, unlike banks, they don’t need to pay dividends to shareholders.

6. Investment banks
Investment banks get involved in the issuing and selling of securities, as well as providing advisory services relating to acquisitions and mergers. They don’t offer products to the public. They have come under immense scrutiny in recent times, due to the role they have played in the collapse of many banks’ balance sheets.

7. Bancassurance companies:

It used to be the case that you went to a bank if you wanted a checking account,and you went to an insurance company if you wanted home insurance. However, the boundaries between banks and insurance companies have blurred over the last couple of decades and many banks now offer regulated insurance products alongside their standard bank accounts.