2.12. Banking institutions
Accept money deposits from and make loans to individual
consumers and businesses. Some of the most important banking institutions
include: commercial banks, savings and loan associations, credit unions, and
mutual savings banks. Historically, these have all been separated institutions.
However, new hybrid forms of banking institutions that perform two or more of
theses functions have emerged over the last two decades. The following banking
institutions all have one thing in common: they are businesses whose objective
is to earn money by managing, safeguarding, and lending money to others. Their
sales revenues come from the fees and interest that they charge for providing
these financial services. (O.C.Ferrel, 2006)
Ø Commercial banks: the largest and
oldest of all financial institutions, relying mainly on checking and savings
accounts as sources of loans to businesses and individuals.
Ø Savings and loans associations: are
financial institutions that primarily offer savings accounts and make long term
loans for residential mortgages; also called thrifts.
Ø Credit union: is a financial
institution owned and controlled by its depositors who usually have a common
employer, profession, trade group or religion.
Ø Mutual saving banks: are financial
institutions that are similar to saving and loan associations but, like credit
unions; are owned by their depositors.
Ø Insurance for banking institutions:
they insure individual bank accounts.
Ø National credit union association
(NCUA): is agency that regulates and charters credit unions and
insures their deposits through its national credit union insurance fund.
2.13. Non banking
institutions
Offer some financial services, such as short term loans or
investments products, but do not accept the deposits. These include insurance
companies, pension funds, mutual funds, brokerages firms, non financial firms
and finance companies.
v Insurance companies: businesses that protect
their clients against financial losses from certain specified risks (death,
accident and theft, etc)
v Pension funds: managed investment pools set
aside by individuals, corporations, unions, and some nonprofit organizations to
provide retirement income for members.
v Mutual fund: an investment company that pools
individual investor dollars and invests them in a large numbers of
well-diversified securities.
v Brokerage firms: firms that buy and sell
stocks, bonds, and other securities for their customers and provide other
financial services.
2.14. Diversified firms
ü Finance companies: business that offers
short term loans at substantially higher rates of interest than banks.
ü Electronic banking: since the advent of
the computer ages, a wide range of technological innovations has made it
possible to move money all across the world electronically. Such as paper less
transaction have allowed financial institutions to reduce costs in what has
been virtual competitive battle field.
· Electronic Fund Transfer (EFT): any
movement of funds by means of an electronic terminal, telephone, computer or
magnetic tape such transactions order a particular financial institution to
subtract money from one account and add it to another. The most commonly used
form of EFT are automated teller machines, automated clearing-houses, and home
banking systems.
· Automatic Teller Machines (ATM):
is the most familiar form of electronic banking, which dispenses cash,
accepts deposits and allows balance inquires and cash transfers from one
account to another. ATMs provide 24 hours banking services, both at home and
far away.
· Automated Clearing Houses (ACHs):
a system that permits payments such deposits or withdraws to be made
to and from bank account by magnetic computer tape.
· Online banking (home banking
systems): with the growth of the internet banking activities may
now be carried out on a computer at home or at work, or through wireless
devices such as cell phone any where there is a wireless «hot point»
consumers and small businesses can now make a bewildering any of financial
transactions at home or on the go 24 hours a day. (O.C.Ferrel,2006)
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