Types of Financial Institutions

Financial Institutions

• Whether you are financially comfortable or struggle to make ends meet, it pays to know how various financial institutions differ and what role they play in today’s world.

Central Bank

THE Central Bank

• A central bank is an organization responsible for managing banking activity. Many countries have central banks. In the US, the central bank is the Federal Reserve, commonly known as 'the Fed'.

Central Bank

• In the US, the central bank has three primary goals:
• Conduct monetary policy
• Supervise and regulate financial firms
• Provide financial services
• Most people do not interact with Central Bank.

Retail Banks

Commercial Banks

• A retail bank works with consumers. A commercial bank is one that works with businesses. However, most banks today offer their products and services to both consumers and businesses and are commonly referred to as commercial banks.

Commercial Banks

• Checking and saving accounts
• Certificate of deposits
• Safe deposit boxes
• Loans including Mortgages
• Credit Cards
• Other related products

Banks

• There are about 7000 banks across the US. They are many types. We will discuss the most relevants insha Allah

National Banks

• These are the larger banks that have branches and interests across the country. Their business models are complex. The largest ones have become known as “The Big Banks.” Among the 5 largest banks in the U.S. are Bank of America and Wells Fargo.

Regional Banks

• Although the definition of a regional bank varies, it is generally one that operates in one region of the country, such as a state or within a group of states and is concerned with the regional economy. Well known regional banks in Southern Virginia include First Citizens and Carter Bank & Trust

Community Banks

• Community banks are typically locally owned and operated. They tend to focus on the needs of local businesses and families. Lending decisions are made by people who understand those needs of businesses and farmers. First community Bank of central Alabama is a good example.

Internet Banks

• Some banks these days do not have physical locations. They serve customers strictly in the virtual world. Everything, including opening accounts, is done online at these banks.

Savings & Loan Associations

• Also known as thrifts, these are financial institutions that specialize in savings type deposits, mortgages and other loans. They can serve both consumers and businesses; however, by law, thrifts can have no more than 20 percent of their lending in commercial loans.

Credit Unions

• Credit unions differ from banks and other financial institutions in that those who have accounts in the credit union are its members and actual owners. These member-owned financial cooperatives are democratically controlled by its members, and operated for the purpose of offering its members economical financial services.

Investment Banks

• Unlike commercial banks, investment banks do not take deposits. Their focus is assisting individuals, corporations, and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions

Mutual Fund Companies

• Sometimes called investment companies, these are companies that pool money from many investors to purchase securities. Each fund invests in a different group of securities for the investors. They serve the general public. If you own a 401(k) or similar account, you are probably served by a mutual fund company.

Brokerage firms

• Often simply called a brokerage, this is a financial institution that facilitates the buying and selling of securities between investors. They serve a clientele that trades public stocks and other securities. The firm's agents, commonly called stockbrokers, research the markets to provide appropriate recommendations

Insurance Companies

• These are corporate entities that insure people against loss. The client pays a fee, known as a premium, in exchange for the promise of the company to protect the client financially in the event of certain potential misfortunes. The different types of insurance include life, vehicle, health, liability and homeowners.

Mortgage Companies

• These are companies engaged in the business of originating and/or funding mortgages for residential or commercial property. A mortgage company is often just the originator of a mortgage; they typically have access a network of lending institutions that provide the capital for the mortgage itself.