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Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial institutions: # Depository institutions – deposit-taking institutions that accept and manage deposits and make
loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...
s, including
bank A bank is a financial institution that accepts 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 markets. Beca ...
s, building societies,
credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...
s, trust companies, and
mortgage loan A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners ...
companies; # Contractual institutions –
insurance companies 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 Risk management is th ...
and
pension fund A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides pension, retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed a ...
s # Investment institutions – investment banks, underwriters, and other different types of financial entities managing investments. Financial institutions can be distinguished broadly into two categories according to ownership structure: * Commercial banks * Cooperative banks 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 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 intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compe ...
. 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 Bank, banking operating in almost all countries worldwide, under which banks that take bank deposits, deposits from the public are required to hold a proportion of their Liability (financial accountin ...
. Regulatory 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 The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
, 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 The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures credi ...
(FDIC) State "non-member" banks,
National Credit Union Administration The National Credit Union Administration (NCUA) is a government-backed insurer of credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial coop ...
(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 of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
(Fed) - "member" Banks, Office of Thrift Supervision - National Savings & Loan Association, State governments each often regulate and charter financial institutions. Countries that have one consolidated financial regulator include: Norway with the Financial Supervisory Authority of Norway, Germany with Federal Financial Supervisory Authority and Russia with
Central Bank of Russia The Central Bank of the Russian Federation (CBR; ), Trade name, doing business as the Bank of Russia (russian: Банк России}), is the central bank of the Russia, Russian Federation. The bank was established on July 13, 1990. The predeces ...
.


Merits

Merits of raising funds through financial institutions are as follows: # Financial institutions provid
long term finance
which are not provided by
commercial bank A commercial bank is a financial institution which accepts deposit (finance), deposits from the public and gives loans for the purposes of consumption and investment to make profit (economics), profit. It can also refer to a bank, or a division ...
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.


See also

*
Bank A bank is a financial institution that accepts 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 markets. Beca ...
* Consumer Credit Act 1974 (UK law) *
Credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...
*
Capital market A capital market is a financial market in which long-term debt (over a year) or Equity (finance), equity-backed security (finance), securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital m ...
* Ethical banking *
Financial economics Financial economics, also known as finance, is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on ''both sides'' of a trade".William F. Sharpe"Financial ...
*
Fractional-reserve banking Fractional-reserve banking is the system of Bank, banking operating in almost all countries worldwide, under which banks that take bank deposits, deposits from the public are required to hold a proportion of their Liability (financial accountin ...
*
International financial institutions An international financial institution (IFI) is a financial institution that has been established (or chartered) by more than one country, and hence is subject to international law. Its owners or shareholders are generally national governments, al ...
* List of financial regulatory authorities by country * Non-bank financial institution *
Savings and loan association A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making Mortgage loan, mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the Unit ...
* Society for Worldwide Interbank Financial Telecommunication * Cooperative banking


References

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Financial institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...