Financial Institutions are companies that provide financial services to individuals and businesses. Basically the "products" they deal in are financial.
Some of the services provides are:
- deposit accounts
- currency exchange
- loans
- investments
- insurance policies
Since these organization deal with money, they tend to be heavily regulated by governments. The services are provided by financial intermediaries who adhere to the regulations.
Financial institutions are essential because they provide a marketplace for money and assets so that capital can be efficiently allocated to where it is most useful. Lenders provide resources to those who are in need, either on a short or long term basis.
Commercial banks find borrowers while investment banks find investors.
Depository Institutions
Some financial institutions make money by collecting deposits. These entities are depository institutions and use the deposits to earn a higher return as compared to the the interest rate it is paying. These are traditional banks and credit unions. The difference between the two of these is who owns the institution.
Banks are owned by their shareholders whereas credit unions are owned by the members.
Banks take in deposits and pool it. Then it lends the money to borrowers who are in need of the capital. It is the merging of savers and borrowers.
This contrasts with non-depository institutions that do not take in deposits. The money that is utilized by these firms come from operations. These are brokerage firms and insurance companies.
Investment Institutions
Financial institutions that provide investment services are called investment institutions. These can be brokerage firms, exchanges, and investment banks. These can provide access to securities along with management services.
These entities target both individuals and corporations. The services to corporations can be asset management as well as underwriting. Investment banks also are market makers, helping to provide liquidity.
Hedge funds are a popular investment institutions especially among high net worth individuals. These are some of the biggest in terms of assets under management.
Types of Financial Institutions
The 9 Types of Financial Institutions are:
- Central Banks
- Retail and Commercial Banks
- Internet Banks
- Credit Unions
- Savings and Loan Associations
- Investment Banks
- Brokerage Firms
- Insurance Companies
- Mortgage Companies
Largest Banks
The largest banks in the world by revenue.
- Industrial and Commercial Bank Of China Ltd. (IDCBY)
- China Construction Bank Corp. (CICHY)
- JPMorgan Chase & Co. (JPM)
- Bank of America Corp. (BAC)
- Wells Fargo & Co. (WFC)
- Citigroup Inc. (C)
- BNP Paribas (BNPQY)
- HSBC Holdings (HSBC)
- Banco Santander (SAN)
- China Merchants Bank (CIHKY)
Top 10 Banks By Market Capitalization (as of 3/20/23)
| Name | Ticker | Market Cap |
|---|---|---|
| JP Morgan Chase | JPM | $376 billion |
| Bank of America | BAC | $225 billion |
| Industrial and Commercial Bank of China (ICBC) | IDCBY | $224 billion |
| China Construction Bank | CICHY` | $163 billion |
| Bank of China | BACHF | $158 billion |
| Agricultural Bank of China | ACGBY | $154 billion |
| Morgan Stanley | MS | $145 billion |
| Wells Fargo | WFC | $144 billion |
| HSBC | HSBC | $133 billion |
| Royal Bank of Canada | RY | $130 billion |