financial institution

Banking Terms -> financial institution

• Financial institutions are entities that offer financial products and services to their members and clients. The majority of such institutions are regulated by government acts and provisions and act as financial intermediaries. Three types of financial institutions can be differentiated. Deposit-taking entities are financial institutions that accept deposits from clients and make loans. These include banks, mortgage loan companies, trust companies, building societies, and credit unions, among others. Investment funds, underwriters, and brokers fall into a second category. A third category of financial institutions is represented by pension funds and insurance companies.
  
  Broadly speaking, financial institutions collect money from the public, placing them in different financial assets. These include bonds, loans, deposits, but not tangible property. In can be said that financial institutions are establishments that specialize in financial transactions (e.g. investment instruments). Almost any person or entity deals with financial institutions regularly. Every financial transaction – from taking out a loan to depositing money and converting it from one currency into another – is done with the help of a financial institution. Given that all persons depend on the services and products offered by financial institutions, it is only naturally that financial institutions are tightly regulated by the US Federal Government. For instance, if some financial entity engages in controversial practices and goes bankrupt as a result of this, there is a risk of panic spreading among the population. With people questioning the safety of banks and the financial system in general, loss of confidence can affect the working of the economy. In the USA, the main government institutions regulating financial institutions are the Office of the Comptroller of the Currency, the Federal Financial Institutions Examination Council, and the Federal Deposit Insurance Corporation, among others.
  
  Some financial entities act as mediators on the debt security markets and the share markets. The main function of such institutions involves collecting money from investors and channelling them into a variety of financial service providers that seek financing. On the other hand, financial institutions are involved in a lot more than collecting deposits and extending financing. Other financial activities are related to retirement planning, hedging, risk diversification, and debentures. In addition, some financial institutions offer portfolio management, investment advice, and other related products and services. There are financial institutions and branches of such that specifically cater to high net worth persons and offer them personalized advice and services.
  
  Financial entities can be either public or private in nature and can be divided into several broad categories. These are personal finance companies, home finance companies, personal finance companies, and car finance companies. In addition, there are mortgage and business finance companies, as well as corporate finance companies.
  
  Financial institutions do not operate in one particular country only, and may have multiple branches and offices abroad. This development has been associated with globalization and its increasing impact on the global economy.
  
  When speaking of financial institutions, the first that usually comes to mind is one’s personal banking establishment. Some people are customers of savings banks while others are members of credit unions. The term banking is generally associated with four types of financial institutions – commercial banks, credit unions, savings and loan associations, and internet banks. Internet banks are the newest type of banking institutions which generally pay higher interest rates on clients’ deposits and give out loans at lower rates compared to other banks. The reason is that they do not maintain offices and have fewer employees, thus saving on expenses. The convenience of Internet, combined with lower loan rates, makes internet banking an attractive option for many customers.

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