A financial institution can be defined as an organization that processes financial transactions such as loans, deposits and investments. Almost every person deals with various financial institutions on a daily basis. Whether it is depositing money, applying for loans or exchanging currencies, financial institutions are the nucleus of these activities. Here is a short overview on the list of financial institutions and a summary on their roles.
Commercial Banks
A Commercial bank accepts deposits & provides security in a convenient way to its customers. Previously, a part of the prime purpose of these banks was to provide security to the customer’s money. Commercial banks also generate loans that individuals & businesses utilize to purchase goods or even expand business operations. A Commercial Bank is also a type of Financial Institution that often performs roles as a payment agent within a country & between nations.
Investment Banks
While an investment bank is also referred to as a normal “bank,” its operations are very different from the deposit-gathering commercial banks. An investment bank is an institution that acts as a financial arbitrator that performs a wide array of services for governments and businesses.
Insurance Companies
An Insurance company pools risk by gathering premiums from a large number of people who wish to protect themselves or their loved ones from particular losses. These losses may include car accidents, fire incidents, disability, lawsuit, illness or death. Insurance companies also help individuals & companies to manage risk & preserve wealth.
Brokerage Firms
Brokerages act as arbitrators between buyers & sellers. They mainly assist in securities transactions. A Brokerage company is compensated via commissions after successful completion of transactions. For e.g. when the trade order for some stocks is carried out, a person generally pays a transaction fee. He pays this fee for the efforts the brokerage company puts in, to implement the trade.
So broadly speaking, Financial Institutions are Private or public organizations that act as facilitators between savers & borrowers of funds.
