OTHER

FINANCIAL
INSTITUTIO
NS
OTHER LENDING
INSTITUTIONS

• Savings Associations • Historically referred to as savings and loan

(S&L) associations
• Savings Banks • Established as mutual organizations and largely
confined to the East Coast and New England states
• Credit Unions • Are not-for-profit depository institutions mutually
organized and owned by their members (depositors)
• Finance Company Functions • Originated during the Depression
when General Electric Corp. created GE Capital Corp. to finance
appliance sales to cash-strapped customers • In the late 1950’s,
banks became more willing to make installment loans so finance
companies branched out into leasing and leveraged buyouts •
Willing to lend to riskier borrowers • Often are directly affiliated
with manufacturing
INSURANCE COMPANIES

• The primary function of insurance companies is to compensate

policyholders if a prespecified event occurs, in exchange for
premiums paid insurance underwriters assess and price risk
insurance brokers sell insurance contracts for coverage or for a
policy Insurance is broadly classified into two groups life insurance
provides protection against untimely death, illness, and
retirement property-casualty insurance protects against personal
injury and liability Insurance companies also sell a variety of
investmentproducts similar to other FIs
 SECURITIES FIRMS
AND INVESTMENT
BANKS
Investment Banks - raise the debt and equity securities for
corporations or governments including the origination,
underwriting, and placement of securities in money and capital
markets
• Securities Firms - services involve assistance in the trading of
securities in the secondary markets (brokerage services or market
making)
• The largest companies in the industry perform multiple services
(e.g., underwriting and brokerage) and are generally called
investment banks • advise corporations on mergers and
acquisitions as well as advising on the restructuring of existing
corporations
INVESTMENT COMPANIES

• Financial intermediaries that invest the funds of individual investors in securities or other assets.
• Three main types of Investment Companies • Open-end Investment company • Closed-end Investment
company • Unit Investment Trust
• Open-end Investment Company • Sell shares to investors. When the investors want to sell their shares,
the Mutual Fund will repurchases the shares at the NAV. (Funds Grow and Shrink)
• Closed-end Investment Company • Shares more closely resemble stocks in the way that they are traded.
• They raise money only once. The shares are traded on an exchange (like NYSE). • Price of the shares are
influenced by supply and demand AND changes in the value of the holdings (Stocks and Bonds). • Shares
prices may be different than the NAV.
• Unit Investment Trust • Money invested in a portfolio that is fixed for the life of the fund. • Typically a
broker buys a portfolio of securities which are deposited into the trust. It then sells shares or units in the
trust called, redeemable trust certificates. • Most unit trusts hold fixed-income securities and their unit
expires at maturity • Shares or “units” of redeemable trust certificates are sold by the trust • Investors
can sell their shares back to the trustee
 PENSION FUNDS

• Pension funds offer tax-deferred savings plans • First established in 1759 •

American Express established the first corporate pension fund in 1875 • By
1940, only 400 pensions funds were in existence • Currently there are over
700,000 pension funds; 30.9% of household fin. assets are in pension funds
• Pension Funds, Two Distinct Sectors • Private pension funds • funds
administered by a private corporation (e.g., insurance company, mutual fund) •
Public pension funds • funds administered by a federal, state, or local
government (e.g., Social Security)