Limited-Purpose Banks: Their Specialties, Performance, and Prospects

By: Chiwon Yom

Download the full text in PDF format.

Introduction:

Limited-purpose banks are institutions that specialize in relatively narrow business lines. Some limited-purpose banks concentrate on making a certain type of loan, some serve a subset of consumers, and some offer an innovative product. As niche players focusing on a limited set of activities, these institutions can quickly develop expertise in their particular business lines and can become efficient producers. Specialization may have been promoted by technological innovations, which generally lead to gains in productivity and economies of scale.

This study examines credit card banks, subprime lenders, and Internet primary banks. Although numerically these institutions make up a small share of the financial services industry, their unique products and technologies have attracted considerable attention. Insured institutions such as MBNA, Providian, and ETrade Bank are examples of limited-purpose banks specializing, respectively, in credit card services, subprime lending, and Internet banking.

Download the full text in PDF format.