Dictionary of Banking Terms: banking power
banking power
- ability of a bank to lend, specifically its power to "create money" by depositing a portion of a new loan in a bank account. The borrower doesn't take out the loan in cash; instead, the loan proceeds are deposited in a new or existing checking account. The lender agrees to honor checks drawn against the account, and can use part of that balance to make new loans.
Unlike most other corporations, which are free to engage in almost anything not prohibited by law, U.S. banks may undertake only those activities specifically approved by law or regulation. Banking powers generally fall into two categories: express powers, including the ability to lend money granted by state legislatures or Congress; and implied powers given by the courts through judicial rulings. See also money multiplier. - financial services regarded as closely related to banking and approved by Congress or banking supervisory agencies as permissible nonbank activities. In the 1990s, many barriers limiting bank activities in securities dealing, insurance, mutual funds, and investment advisory services were lifted, allowing banks to compete more freely with non-bank financial institutions. See also Financial Holding Company (FHC); gramm-leach-bliley act of 1999, securities act of 1933.
