Financial institution

"Banking institutions" redirects here. For banks as financial institutions, see Bank.

The oldest financial institution in the world, Banca Monte dei Paschi di Siena.

Financial institutions, otherwise known as banking institutions, are corporations which provide services as intermediaries of financial markets. Broadly speaking, there are three major types of financial institutions:

1. Depository institutions – deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies;
2. Contractual institutions – insurance companies and pension funds
3. Investment institutions – investment banks, underwriters, brokerage firms.

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.

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 traders to make faster trades since the time used to settle the receiving agents is conserved. Limiting the trader to an SSI also lowers the likelihood of a fraud. 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 lending. 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, 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.

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.

Merits

The merits of raising funds through financial institutions are as follows:

   1.Financial institutions provide long term finance, which are not provided by commercial banks;
   2.The funds are made available even during  periods of depression, when other sources of finance are not available.
                                                                                                                       

See also

• Bank
• Consumer Credit Act 1974 (UK law)
• Credit union
• Financial economics
• Fractional-reserve banking
• International financial institutions
• List of financial regulatory authorities by country
• Non-bank financial institution
• Savings and loan association
• Society for Worldwide Interbank Financial Telecommunication

• Cooperative banking