Financial institutions, otherwise known as banking institutions, are

corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...

s 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 Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avai ...

s, including

bank A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state ...

bank

building societies A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services Financial services are the Service (economics), economic services provided by the fi ...

credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned financial cooperative, controlled by its members and operated on a not-for-profit basis. Credit unions generally provide services to members simila ...

s, trust companies, and

mortgage loan A mortgage loan or simply mortgage () is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. T ...

companies; # Contractual institutions –

insurance companies Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. ...

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 an ...

s # Investment institutions –

investment banks An investment bank is a financial services Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit ...

underwriters 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 liabilit ...

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

Commercial banks A commercial bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), s ...

* 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 A counterparty (sometimes contraparty) is a legal entity, unincorporated entity, or collection of entities to which an exposure to financial risk might exist. The word became widely used in the 1980s, particularly at the time of the Basel I in 198 ...

in ordinary trades of some type. These agreements allow the related

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

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 , fraud is to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation) or (e.g., a fraud perpetrat ...

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 banking Fractional-reserve banking is the system of banking 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 directl ...

. 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 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 i ...

(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 charter A charter is the grant of author ...

- National Banks,

Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance Deposit insurance or deposit protection is a measure implemented in many countries to protect bank depositors, in full or in part, from losse ...

(FDIC) State "non-member" banks,

National Credit Union Administration The National Credit Union Administration (NCUA) is one of two agencies that provide deposit insurance to depositors in U.S. depository institutions, the other being the Federal Deposit Insurance Corporation, which insures commercial banks an ...

(NCUA) - Credit Unions,

Federal Reserve The Federal Reserve System (also known as 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 series ...

(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 all ...

- 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 The Financial Supervisory Authority of Norway ( no, Finanstilsynet) is a Norwegian Norwegian, Norwayan, or Norsk may refer to: *Something of, from, or related to Norway, a country in northwestern Europe *Norwegians, both a nation and an ethnic gro ...

, Germany with

Federal Financial Supervisory Authority The Federal Financial Supervisory Authority (german: Bundesanstalt für Finanzdienstleistungsaufsicht, Bundesanstalt für Finanzdienstleistungsaufsicht) better known by its abbreviation BaFin is the financial regulatory authority for Germany ...

and Russia with

Central Bank of Russia The Central Bank of the Russian Federation (russian: Центральный банк Российской Федерации ''Tsentral'nyy bank Rossiyskoy Federatsii'') also known as the Bank of Russia (russian: links=no, Банк России '' ...

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 Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity) ...

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.

Society for Worldwide Interbank Financial Telecommunication The Society for Worldwide Interbank Financial Telecommunication (SWIFT), legally S.W.I.F.T. SCRL, provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standa ...

Cooperative banking Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—us ...

References

{{Authority control

Financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entit ...

Standard settlement instructions

Regulation

Merits

See also

References