Second-tier banks, also known as second-floor banks, are financial institutions with the specific purpose of financing projects that lead to the economic development of a country. They hold great similarities to development banks, as is the Inter-American Development Bank, which finances special programs in developing countries in strategic areas: agriculture, infrastructure, housing, etc.

Second-tier banks, though, are different from development banks in two principal aspects: (1) they are state-run and funded, and (2) they do not provide financial products directly to the final beneficiary. Instead, they give funding to first-tier banks (usually, commercial banks) for special financial products, which are given to the final beneficiaries. For instance, they might provide special funding for social housing for the value of USD 100.000.000 to a commercial bank at an especially low interest rate (say, 4.5%). The commercial bank, then, will convert these funds to specific loan products at a slightly higher interest rate.

Second-tier banks provide a framework of regulations commercial banks and beneficiaries must adhere to, according to each specific product. These conditions commonly limit the interest rate the commercial bank can set on these products, and establish specific requirements to be an eligible beneficiary. The purpose is directing financing to strategic (and usually, disenfranchised) areas of the economy which will lead to steady development in said area. Examples of second-tier bank financial products are specific loans for agricultural irrigation, for starting businesses, and for middle-class housing.

Submitted to BrevityQuest14 by the powers conferred upon me by LateQuest.

Special thanks to The Custodian for helping with my Englishes.