Financial Institution In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are regulated by the government.
Broadly speaking, there are three major types of financial institutions: Depositary Institutions : Deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies Contractual Institutions: Insurance companies and pension funds; and Investment Institutes: Investment Banks, underwriters, brokerage firms. Function Financial institutions provide service as intermediaries of financial markets.
They are responsible for transferring funds from investors to companies in need of those funds. Financial institutions facilitate the flow of money through the economy. Standing settlement instructions Standing Settlement Instructions (SSIs) are the agreements between two financial institutions which fix the receiving agents of each counter party in ordinary trades of some type.
Regulation Financial institutions in most countries operate in a heavily regulated environment as they are critical parts of countries’ economies. Regulation structures differ in each country, but typically involve prudential regulation as well as consumer protection and market stability. Some countries have one consolidated agency that regulates all financial institutions while others have separate agencies for different types of institutions such as banks, insurance companies and brokers.
Countries that have separate agencies include the United States, where the key governing bodies are the Federal Financial Institutions Examination Council (FFIEC), Office of the Comptroller of the Currency – National Banks, Federal Deposit Insurance Corporation (FDIC) State “non-member” banks, National Credit Union Administration (NCUA) – Credit Unions, Federal Reserve (Fed) – “member” Banks, Office of Thrift Supervision – National Savings & Loan Association, State governments each often regulate and charter financial institutions.
The financial institutions are generally regulated by the financial laws of the government Various types of financial institutions are as follows: * Commercial Banks * Credit Unions * Stock Brokerage Firms * Asset Management Firms * Insurance Companies * Finance Companies * Building Societies * Retailers| Role of Financial Institutions * The various financial institutions generally act as an intermediary between the capital market and debt market.
But the services provided by a particular institution depends on its type. * The financial institutions are also responsible to transfer funds from investors to the companies. * Typically, these are the key entities that control the flow of money in the economy. Services Offered by Various Financial Institutions The services provided by the various types of financial institutions may vary from one institution to another. For example, The services offered by the commercial banks are – * insurance services, * mortgages, loans and * credit cards.
The services provided by the brokerage firms, on the other hand, are different and they are – * insurance, * securities, * mortgages, * loans, * credit cards, * money market and * check writing. The insurance companies offer – * insurance services, * securities, * buying or selling service of the real estates, * mortgages, * loans, * credit cards and * check writing. The credit union is co-operative financial institution, which is usually controlled by the members of the union.
The major difference between the credit unions and banks is that the credit unions are owned by the members having accounts in it. The stock brokerage firms are the other types of financial institutions that help both the corporations and individuals to invest in the stock market. Another type of financial institution is the asset management firms. The prime functionality of these firms is to manage various securities and assets to meet the financial goals of the investors. The firms also offer fund management advice and decisions to the corporations and individuals.