A list of the 9 Types of Financial Institutions
The are the financial institutions that are in our financial system.
1. Central Banks
The independent authority over monetary policy. It is responsible for the oversight of all the other banks. In the US, this is the Federal Reserve System. The central bank does not engage with the general public. Instead it works with different financial institutions who are the ones who deal with their customers.
Entities that deal directly with the central bank does so through a master account.
2. Retail and Commercial Banks
Retail banks tend to offer services to individuals whereas commercial banks focus upon businesses.
Services typically are:
- mortgages and other loans
- checking and savings accounts
- certificates of deposit (CDs)
- credit cards
- business accounts
These are the banks that are responsible for the money supply through the creation of new loans.
3. Internet Banks
Similar to retail banks while offering the same services. The difference is these banks operate online without a physical presence.
There are two types:
- Digital banks: online platforms that are affiliated with a traditional bank
- Neobanks: digital banks without any relationship to another bank
4. Credit Unions
A member owned, non-profit financial institution that offers the same services as retail banks. These entities are not publicly traded, thus are only required to cover their costs of operation. This allows them to provide better rates than traditional banks.
5. Savings and Loan Associations
An institution that is mutually owned by its customers and does not more than 20% of it lending to businesses.
They provide individual customers:
- checking and savings accounts
- home mortgages
- personal loans
Most are community based and often privately owned. Members pay dues, which is pooled to help pay down rates.
6. Investment Banks
Provide complex financial services to large entities. For example, they will do the offering when a company want to go public (IPO). They will act as the broker as well as advisor for institutional clients such as pension funds.
Investment banks are non-depository institutions. Instead, the help companies raise money through the sale of securities.
Examples of global investment banks are:
- JP Morgan
- Goldman Sachs
- Deutsche Bank
- Credit Suisse
- Citigroup
- Bank of America
- Morgan Stanley
7. Brokerage Firms
Companies that assist individuals and firms in the buying and selling of securties.
Traditionally, they offered:
- stocks
- bonds
- mutual funds
- exchange traded funds (ETFs)
Recently, many institutions are seeking to operate as custodians and offer cryptocurrency services to their clients.
8. Insurance Companies
Companies that transfer risk from the individual to the entity. This is done by pooling of funds which are used to pay out claims. Customers pay in through their premiums and claims are processed by the company to cover loss.
Some of the different types of insurance are:
- home
- auto
- life
- business
- long term care
Some insurance companies such as Lloyds of London will write exotic policies on specific items.
9. Mortgage Companies
Institutions that originate and fund mortgages. They serve both the residential as well as commercial real estate markets.
Mortgage companies seek to originate the loans while having other financial institutions fund them.