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Afinancial institution, sometimes called abanking institution, is abusiness entity that provides service as an intermediary for different types of financial monetary transactions. Broadly speaking, there are three major types of financial institution:[1][2]
Financial institutions can be distinguished broadly into two categories according to ownership structure:
Some experts see a trend towardhomogenisation of financial institutions, meaning a tendency to invest in similar areas and have similar business strategies. A consequence of this might be fewer banks serving specific target groups, and small-scale producers may be under-served.[3] This is why a target of the United Nations Sustainable Development Goal 10 is to improve the regulation and monitoring of global financial institutions and strengthen such regulations.[4]
Standard Settlement Instructions (SSIs) are the agreements between two financial institutions which fix the receiving agents of eachcounterparty in ordinary trades of some type. These agreements allow the relatedcounterparties to make faster operations since the time used to settle the receiving agents is conserved. Limiting each subject to an SSI also lowers the likelihood of afraud. SSIs are used by financial institutions to facilitate fast and accurate cross-border payments.
Financial institutions in most countries operate in a heavily regulated environment because they are critical parts of countries' economies, due to economies' dependence on them to grow the money supply viafractional-reserve banking. Regulatory structures differ in each country, but typically involve prudential regulation as well asconsumer protection and market stability. Some countries have one consolidated agency that regulates all financial institutions while others have separate agencies for different types of institutions such as banks, insurance companies and brokers.
Countries that have separate agencies include theUnited States, where the key governing bodies are theFederal Financial Institutions Examination Council (FFIEC),Office of the Comptroller of the Currency – National Banks,Federal Deposit Insurance Corporation (FDIC) State "non-member" banks,National Credit Union Administration (NCUA) – Credit Unions,Federal Reserve (Fed) – "member" banks,Office of Thrift Supervision – National Savings & Loan Association,State governments each often regulate and charter financial institutions.
Countries that have one consolidated financial regulator include: Norway with theFinancial Supervisory Authority of Norway, Germany withFederal Financial Supervisory Authority and Russia withCentral Bank of Russia.
Merits of raising funds through financial institutions are as follows:
