A money center bank is a large financial institution that maintains a presence in a major financial center, such as New York or London. This type of bank typically has governments, large corporations and even other financial institutions as its customers instead of consumer bankers. Banks that fit in this category typically have large balance sheets as well. A balance sheet is essentially a record of an entity's financial position, which includes its assets and liabilities.
When most people think of banking institutions, they think of retail banks, which lend money and provide accounts for consumers. The major players in the banking world and the largest banks are the money center banks. They serve governments and large businesses as well as the retail banks that serve consumers. Sometimes these banks also have divisions that focus on retail banking, but consumers are not their primary customers.
Typically, money center banks maintain a global presence. This means that they are not only positioned in large financial centers but also have dealings in international markets. Often, a money center bank will maintain a physical location in more than one major financial center. In fact, this type of bank may maintain a physical location in all of the main financial centers of the world. Often, these major banking institutions also maintain physical presences in secondary financial centers. For example, a money center bank may have a location in Paris or Chicago as well.
Part of what a money center bank does is portfolio business, which involves acquiring assets and funding of loans that are likely to offer it the most profit over time. This part of its activities are focused on the best interests of the bank in question. This type of bank also engages in corporate financing, however, which involves helping its corporate clients to secure funding in exchange for a fee. This part of a money center bank’s activities is focused on what is best for the corporate client instead of the bank.
Money center banks typically include trading as part of their activities as well. Often, they engage in the practice of granting loans, which they then sell to investors, marking up the cost of those loans before sale. Money center banks are typically involved in distribution as well. This means the bank sells its own paper, which refers to securities a bank issues instead of those issued by a government. Some also participate in the sale of commercial paper, which is unsecured, short-term debt obligations.
