Financial Institution. A Financial Service provider identified as either a government agency or privately owned entity. The term aims to denote a provider of financial services in the broad sense, usually referring to banks and other regulated entities such as insurance companies, investment dealers and trust companies. It includes, by definition, a range of non-bank financial institutions
In the European Union Financial institution means a Credit Institution, Payment Institution, Electronic Money Institution or firm carrying out the activity of credit provision (lending activity) pursuant to national law of an EEA State.
A financial institution typically intermediates economic activity
- collects funds from the public and from other institutions, and invests those funds in financial assets, such as loans, securities, bank deposits, and income-generating property
- facilitates payments
- engages in risk transfer using various types of contracts
Financial institutions are differentiated by the way they obtain and invest funds:
- Depository institutions accept public deposits, which are insured by the government against loss, and channel those deposits into lending activities.
- Non-depository institutions, such as brokerage firms, life insurance companies, pension funds, and investment companies, fund their investment activities directly from financial markets by selling securities to the public or by selling insurance policies, in the case of insurance companies.
- Cash instruments
- Derivative instruments
- Barron's Dictionary of Banking Terms, Sixth Edition, 2012
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