Financial Institution

Types of Financial
Institutions
• Depository and
• Non depository institutions.
 Financial non depository
institutions

 Non depository institutions include

 Pension funds,

 Securities firms,

 Government- sponsored enterprises, and

 Finance companies.
 Banks
• A bank is a commercial or state institution
that provides financial services, including
issuing money in various forms, receiving
deposits of money, lending money and
processing transactions and the creating
of credit.
 Central Banks

 Central banks are the financial institutions responsible

for the oversight and management of all other banks.

 Responsible for conducting monetary policy and

supervision and regulation of financial institutions.

 Primary responsibility is to maintain the stability of the

national currency and money supply
 Commercial Banks

 A commercial bank accepts deposits from

customers and in turn makes loans, even in
excess of thedeposits; a process
known as fractional reserve banking
 Products offered include checking and savings
accounts, personal and mortgage loans, credit
cards, and business banking accounts.
 Investment Banks
 Do not take deposits; instead, they help
individuals, businesses and governments raise
capital through the issuance of securities.
 Saving Banks
 Primary focus is to accept savings deposit
 Micro Finance Banks
 For the purpose of poverty reduction program, such
kind of banks are working in the different countries
with the contribution of UNO or World Bank.
 Islamic Banks
 Islamic Banking refers to system of banking or banking
activity that consistent with the Islamic law (sharia).

 Islamic law prohibits usury, the collection and payment

of interest, also commonly called as “riba”.
 Leasing Companies
 Financial leasing companies engage in financing the
purchase of tangible assets.

 The leasing company is the legal owner of the goods,

but ownership is effectively conveyed to the lessee, who
incurs all benefits, costs, and risks associated with
ownership of the assets.
 Insurance Companies
 A type of financial institution that provide financial
protection by way of insuring businesses or individuals.
 Life Insurance
 Non-life Insurance
 Federal Reserve System
• Established to supervise and regulate
member banks
• All national banks are required to join the
Federal Reserve System
• Banks that join the system are called
“member banks”
The Functions of the Federal Reserve
• Cashes checks for banks
• Makes loans to banks
• Collect checks for banks
• Supervise all national banks
• Supervises other members of the system
• Raises and lowers interest rates
• Attempts to control inflation
 Financial institutions:
• Accept deposits
• Transfer funds
• Lend money
• Storing valuables
• Provide financial advice and investment
services