What is Group Banking?

In finance, “group banking” can refer either to banking provided to a specific group of people with customized services for their needs or to the formation of a holding company in control of several banks. The type of banking is usually evident from the context, as the two concepts are very different.

In the first sense, group banking often comes up in the context of employees who join a bank or credit union together. The employer works with the bank to create an incentive program encouraging people to sign up. Members of the group may get discounts on fees, access to special services, and greater control over retirement accounts along with offers for insurance and other products. While people are not required to participate in group banking, the benefits of the program are often a compelling argument to join.

For banks, group banking provides a ready-made group of customers, a distinct benefit. The bank does not have to recruit customers, because they sign up on their own. In addition, bureaucratic costs associated with things like direct deposit of paychecks are greatly reduced when employers and employees bank in the same location. Banks get access to capital through the deposits of group banking participants and the participants get benefits like special interest rates, account features like free traveler's checks, and so forth.

Cooperatives involved in group banking do not have to be employees of the same company. Housing cooperatives may use similar systems and people can also bank as a group affiliated with a church or another organization. Bank policies vary, and people interested in the possibility of setting up a group banking program should make arrangements to meet with a bank representative to find out about available options and requirements, such as a minimum number of members.

Group banking in the sense of holding companies in control of banks consists of a holding company with a majority share in two or more banks. The banks have their own boards and are run as independent entities, but the holding company controls their activities and has the power to outvote other shareholders. Depending on regional laws and the percentage of shares owned, the holding company's ownership may need to be approved by government regulators to address concerns about the potential for creating a banking monopoly, where free market competition is limited by having a single company control the bulk of the companies offering banking services.