The Definition of Financial Institutions

Financial institutions are establishments that render financial services or conduct financial transactions such as investmentsloans and deposits for clients. Most people deal with financial services providers (i.e., financial institutions) almost on a daily basis on a regular basis. This is because every financial activities such as depositing money and getting loans as well as exchanging currencies are done through financial institutions.

Types of Financial Institutions

There are several types of traditional financial institutions which include the following-

  1. Commercial Banks
  2. Central Banks
  3. Investment Banks
  4. Insurance Companies
  5. Brokerages 

Commercial Banks

Commercial Banks are a type of financial institution that accept deposits and provide security and convenience to their customers. Part of the original purpose of banks was to offer customers safe keeping for their money. By keeping physical cash at home or in a wallet, there are risks of loss due to theft and accidents, not to mention the loss of possible income from interest. With banks, consumers no longer need to keep large amounts of currency on hand; transactions can be handled with checks, debit cards or credit cards, instead. Commercial banks also make loans that individuals and businesses use to buy goods or expand business operations, which in turn lead to more deposited funds that make their way to banks. If banks can lend money at a higher interest rate than they have to pay for funds and operating costs, they make money…

To read more about the functions of commercial banks, its limitations, the Central Bank and more, click here-