Non-bank financial institutions are often instrumental in obtaining financing for a car loan.
Many financial institutions have become institutional conglomerates that provide a variety of services, from investment advisory work to banking services. However, there are some non-bank financial institutions that focus on a single line of business or simply engage more in non-bank financial services. Non-bank institutions are not legally authorized to accept customer deposits. However, they may advise on asset investment, execute buy and sell orders on behalf of investors, or provide research on the financial markets, the economy, or individual investments. Some non-bank financial institutions are traditional financial companies, while others are companies that have evolved to offer financial services.
In developed economies, non-bank financial institutions still need to comply with some regulation. Although these companies are not legally banking institutions and do not have banking licenses, financial transactions still take place outside of the warehouses. As a result, there must still be accountability to a regulatory body, even if it is local, and certain guidelines must be followed, such as maintaining minimum capital requirements or financial reserves.
Non-bank financial institutions can be found in some unlikely places, including the automotive industry. In addition to making and selling vehicles, some automakers decide to capitalize on the fact that most customers need a loan to buy a car and then expand into the financing business. Loans can be made to customers of the automaker’s financial arm. This finance division does not accept deposits from clients, but receives interest payments on the loans offered. In addition to loans, this type of non-bank institution may offer leasing services and insurance products to clients.
Investment banks are another type of non-bank financial institution. Investment banking companies may strictly provide advisory services to clients. This could take the form of advising a company on a merger or acquisition or recommending a transaction where the client can raise money in the financial markets. In addition, investment banks provide underwriting services for companies. These non-banking institutions can take the lead in selling a company’s stock or debt to the public.
A nonbank financial institution may not be able to accept cash deposits from customers, but must still raise money in some way to meet minimum capital requirements. As a result, these companies can raise money by issuing bonds in the debt market. This is one way the financial institution can raise money to support the value of a balance sheet and have additional cash to run your business.