We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is a Captive Bank?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 11,332
References
Share

Captive banks are financial institutions that are partially or wholly owned by another entity, and are normally created for the exclusive use of the firm or firms that own the bank. It is not unusual for a captive bank to serve as a tax haven for the owners. Depending on the structure of the captive bank, the owners may allow a small number of clients to also make use of the bank’s services, with those clients usually having some sort of business relationship with the owning entity or entities.

The scope of services offered by a captive bank are usually very similar to those offered by other banking institutions. Just as commercial banks may extend different types of loans as part of a merchant banking strategy, the captive financial institution will offer the same. Even basic banking services such as checking and savings accounts, loans for cars and residential properties, and other offerings are found with a captive bank. The difference is that the services are typically available to only a select few rather than open to the public at large.

One of the main advantages of a captive bank is the ability to create tax benefits for the owners of the institution and to a lesser degree for any others who are allowed to obtain services from the bank. In many nations, the financial rules that apply to other types of banks do not apply to a captive bank. This means that the bank can be chartered with lower requirements in terms of capital and backing, and also have more control over how the business is conducted. The reason for the relaxed laws as they pertain to this type of bank is due to the fact that services are only offered to a relatively small group, whereas other banking institutions are free to solicit customers from all walks of life.

One of the benefits of a captive bank is the ability to arrange finances among the small group of participants in ways that are not usually possible with other models. While this arrangement can work to the advantage of those who utilize the bank’s services, it is important to note that the protections and guarantees associated with other types of banks may or may not be provided to the customers of a captive bank. For this reason, participating in this type of banking arrangement requires careful scrutiny of how the bank will be organized and how much risk is involved in that participation.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-is-a-captive-bank.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.