A financial institution, sometimes called a banking institution, is a

business entity In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

that provides service as an intermediary for different types of financial monetary transactions. Broadly speaking, there are three major types of financial institution: # Depository institution – deposit-taking institution that accepts and manages deposits and makes

loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

s, including

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

building society A building society is a financial institution owned by its members as a mutual organization, which offers banking institution, banking and related financial services, especially savings and mortgage loan, mortgage lending. They exist in the Unit ...

credit union A credit union is a member-owned nonprofit organization, nonprofit cooperative financial institution. They may offer financial services equivalent to those of commercial banks, such as share accounts (savings accounts), share draft accounts (che ...

trust company A trust company is a corporation that acts as a fiduciary, trustee or agent of trusts and agencies. A professional trust company may be independently owned or owned by, for example, a bank or a law firm, and which specializes in being a trust ...

, and

mortgage broker A mortgage broker acts as an intermediary who brokers mortgage loans on behalf of individuals or businesses. Traditionally, banks and other lending institutions have sold their own products. As markets for mortgages have become more competitive, ...

; # Contractual institution –

insurance company Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...

and

pension fund A pension fund, also known as a superannuation fund in some countries, is any program, fund, or scheme which provides pension, retirement income. The U.S. Government's Social Security Trust Fund, which oversees $2.57 trillion in assets, is the ...

# Investment institution –

investment bank Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

underwriter Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability ...

, and other different types of financial entities managing investments. Financial institutions can be distinguished broadly into two categories according to ownership structure: *

commercial bank A commercial bank is a financial institution that accepts deposits from the public and gives loans for the purposes of consumption and investment to make a profit. It can also refer to a bank or a division of a larger bank that deals with whol ...

cooperative bank Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world. Cooperative banking, as discussed here, includes retail banking carr ...

Some experts see a trend toward homogenisation of financial institutions, meaning a tendency to invest in similar areas and have similar business strategies. A consequence of this might be fewer banks serving specific target groups, and small-scale producers may be under-served. This is why a target of the United Nations Sustainable Development Goal 10 is to improve the regulation and monitoring of global financial institutions and strengthen such regulations.

Standard settlement instructions

Standard Settlement Instructions (SSIs) are the agreements between two financial institutions which fix the receiving agents of each

counterparty A counterparty (sometimes contraparty) is a Juristic person, legal entity, unincorporated entity, or collection of entities to which an exposure of financial risk may exist. The word became widely used in the 1980s, particularly at the time of the ...

in ordinary trades of some type. These agreements allow the related counterparties to make faster operations since the time used to settle the receiving agents is conserved. Limiting each subject to an SSI also lowers the likelihood of a

fraud In law, fraud is intent (law), intentional deception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly. Fraud can violate Civil law (common law), civil law (e.g., a fraud victim may sue the fraud perpetrato ...

. SSIs are used by financial institutions to facilitate fast and accurate cross-border payments.

Regulation

Financial institutions in most countries operate in a heavily regulated environment because they are critical parts of countries' economies, due to economies' dependence on them to grow the money supply via

fractional-reserve banking Fractional-reserve banking is the system of banking in all countries worldwide, under which banks that take deposits from the public keep only part of their deposit liabilities in liquid assets as a reserve, typically lending the remainder to ...

. Regulatory structures differ in each country, but typically involve prudential regulation as well as

consumer protection Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the marketplace. Consumer protection measures are often established by law. Such laws are intended to prevent business ...

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 The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

, where the key governing bodies are the

Federal Financial Institutions Examination Council The Federal Financial Institutions Examination Council (FFIEC) is a formal U.S. government interagency body composed of five banking regulators that is "empowered to prescribe uniform principles, standards, and report forms to promote uniformity ...

(FFIEC),

Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to corporate charter, charter, bank regulation ...

– National Banks,

Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is a State-owned enterprises of the United States, United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was cr ...

(FDIC) State "non-member" banks,

National Credit Union Administration The National Credit Union Administration (NCUA) is an American government-backed insurer of Credit unions in the United States, credit unions in the United States, one of two agencies that provide deposit insurance to depositors in U.S. deposi ...

(NCUA) – Credit Unions,

Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of ...

(Fed) – "member" banks,

Office of Thrift Supervision The Office of Thrift Supervision (OTS) was a List of federal agencies in the United States, United States federal agency under the United States Department of the Treasury, Department of the Treasury that chartered, supervised, and regulated al ...

– National Savings & Loan Association,

State governments State most commonly refers to: * State (polity), a centralized political organization that regulates law and society within a territory **Sovereign state, a sovereign polity in international law, commonly referred to as a country **Nation state, a ...

each often regulate and charter financial institutions. Countries that have one consolidated financial regulator include: Norway with the

Financial Supervisory Authority of Norway The Financial Supervisory Authority of Norway () is a Norwegian government agency responsible for supervision of financial companies within Norway based on law and regulations from Storting, the Norwegian Ministry of Finance and international a ...

, Germany with

Federal Financial Supervisory Authority The Federal Financial Supervisory Authority (), better known by its abbreviation BaFin, is Germany's integrated financial regulatory authority. Since 2014, it has been Germany's national competent authority within European Banking Supervision. ...

and Russia with

Central Bank of Russia The Central Bank of the Russian Federation (), commonly known as the Bank of Russia (), also called the Central Bank of Russia (CBR), is the central bank of the Russia, Russian Federation. The bank was established on 13 July 1990. It traces its ...

Merits

Merits of raising funds through financial institutions are as follows: # Financial institutions provid
long term finance
which are not provided by

s; # The funds are made available even during periods of depression, when other sources of finance are not available; # Obtaining loan from financial institutions increases the goodwill of the borrowing in the capital market . Consequently, such a company can raise funds easily from other sources as well; # Besides providing funds, many of these institutions provide financial, managerial and technical advice and consultancy to business firms; # As repayment of loan can be made in easy installments, it does not prove to be much of burden on the business.

References

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Financial institution A financial institution, sometimes called a banking institution, is a business entity that provides service as an intermediary for different types of financial monetary transactions. Broadly speaking, there are three major types of financial ins ...

Standard settlement instructions

Regulation

Merits

See also

References