ONE OF THE MORE innovative approaches financial institutions have taken recently to improve the services they offer involves creating separate service delivery arms or corporate entities. These offshoots of the parent bank are devoted to specific niches such as so-called "B and C loans" to borrowers with marginal credit, high-end mortgages, custodial or technical support operations, and telemarketing.

A prime example highlighting this trend is a Midwest bank that decided to set up a service corporation dedicated to targeting and identifying marginal loan applicants who had failed to meet traditional mortgage requirements. In setting up the corporation, the bank was able to tap an emerging market that would not otherwise fit under the umbrella of its existing structure. Operating under separate regulatory guidelines, the new entity could write loans with higher interest and stiffer late-fee penalties than the bank could. The service corporation thus was able to open up a new market and increase profits for the bank.

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