What is a Dealer Bank?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 July 2018
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Dealer banks are entities that purchase and sell government or agency securities. A dealer bank may be a commercial bank that specializes in the sale of these types of securities, or a department of a bank that is devoted to handling the sale and purchase of various types of municipal securities. The bank or bank department has full authority to underwrite just about any type of government issued debt securities, including municipal bonds.

The operation of a dealer bank is conducted within regulations put in place by the ruling government in the country of origin. In the United States, each dealer bank in operation is registered with the Municipal Securities Rulemaking Board. Establishing regulations that specify the conditions for operation help to ensure the government securities are managed appropriately with each transaction.

In general, the rules that govern a dealer bank are not that much different from the regulations observed by all banking institutions. The difference is that the focus is on specific types of securities and not the offering of a range of general banking services. The narrow focus allows the bank to operate in a focused niche of the financial market, and often provides the best avenue for purchasing and selling government issued bonds and other securities.


The types of securities that a dealer bank manages are often essential to funding important projects that enhance the standard of living for many people. Federal and local municipal bonds are often utilized to finance improvement projects such as roadways, bridges, and various types of public service buildings. Investors who choose to purchase these types of securities from an authorized municipal securities dealer not only stand to earn a decent return on the investment, but also aid in the enhancement of the infrastructure for the nation as a whole.

Another advantage for investors is that the types of securities offered through a dealer bank tend to be tax free. This is often the case with local municipal bonds. A dealer bank will have access to a wide range of these types of bonds, providing the investor with the ability to evaluate a number of opportunities before settling on a particular bond to purchase.

Investors who have a need to sell a government issued security also find that a dealer bank can be helpful. Going through the bank to effect a sale of the bond issue will ensure the transfer is done within government regulations and that the investor receives an equitable price for the sale.


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