Financial Institutions

By: EconomyWatch   Date: 30 June 2010

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Financial institutions are government-regulated or private entities that offer financial services to their customers. These institutions control the flow of cash from an investor to a company and vise versa within and outside a country. Financial institutions cater to clients ranging from individuals to big organizations, depending on their size and the services offered. Broadly speaking, financial institutions deal in the sectors pertaining to mortgage, automobile, homeowner, personal,business and corporate finance.

Financial Institutions: Types

Financial institutions can be categorized into the following types, based on the services offered by them:

  • Commercial banks: These institutions offer services such as insurance, mortgages, loans and credit cards.


  • Credit unions: They are cooperative financial institutions, generally controlled by members who have accounts in the firm. These unions offer direct debits, direct deductions from payroll, cheaper insurance facilities and standing order facilities.


  • Savings and loan association: These associations offer loans, mortgages, insurance, credit cards and interest to their clients.


  • Stock brokerage firms: These firms help individuals and corporations invest in the stock market. Stock brokerage firms also offer insurance, mortgages, credit cards, securities, loans, check writing and money market services to clients.


  • Asset management firms: These firms manage various securities and assets, and offer fund management advice to help investors meet their financial goals.


  • Insurance companies: Insurance companies provide a cash cover in lieu of premium to policyholders. Services such as insurance, securities, mortgages, loans, credit cards and check writing are offered by these firms.


  • Retailers: They offer services such as insurance, securities, mortgages, loans, credit cards and cash management.

    • Financial Institutions: Miscellaneous Roles

    Financial institutions have a moral and business obligation to provide appropriate guidance to investors so that they canmaximize the benefits from their investments. Financial experts and trainers in these firms explain investing fundamentals and enhance their client’s knowledge of assets, possessions, bonds, stock exchanges and foreign exchange (forex).

    Financial Institutions: Their Role in the Economic Downturn

    Some large financial institutions, pursuing ever higher quarterly profits, made unsound loans or took on unhedged risks. This resulted in the subprime crisis of 2007 and the financial crisis of 2008-2009, leading to the downfall of several leading financial institutions such as AIG, Fannie Mae, Freddie Mac, Lehman Brothers and Bear Stearns.


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