Finance: Five Types of Financial Intermediaries
Financial institutions such as banks, insurance companies and finance companies work as financial intermediaries between the borrower and lender for the buying and selling of loans, stocks and bonds. These intermediaries include depository institutions that include most banks, contractual institutions such as life insurance companies and investment companies such as stock exchanges and mutual funds.
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Mutual Savings Banks
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As a depository institution, mutual savings banks are similar to savings and loans banks. These financial institutions issue deposit accounts that become liabilities when the bank grants loans. By granting loans, the financial institution can acquire assets through interest rates and charges. With the depositors owning the financial institution, mutual savings banks grant mainly mortgage loans.
Credit Unions
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Operated and owned by company employees through a one-member/one-vote association, credit unions are many ways similar to banks. These financial institutions, also known as thrift institutions, offer deposit accounts to members and uses the deposited funds for the members to take out loans. Most loans credit unions issue involve commercial loans for the purpose of buying cars and large ticket items.
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Life Insurance Companies
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Life insurance companies obtain funds through issuing contracts and collecting on policy premiums. These contractual savings institutions collect the premiums on periodic or regular intervals based on the contract terms. The life insurance company uses the collected funds to buy mortgages and corporate bonds along with some stocks.
Finance Companies
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As an investment intermediary, finance companies sell commercial papers, bonds and stocks between sellers and buyers. These companies make consumer loans and business loans based on risk-sharing and monitoring investment borrowers.
Mutual Funds
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Mutual fund companies sells shares to individuals while using the profits to buy bonds and stocks. These investment intermediaries allow for individual investors to pool their resources. In this manner, the individual investor can create a more diversified portfolio of assets through mutual fund companies.
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References
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