what is a financial institution fi 
a financial institution fi is a company engaged in the business of dealing with financial and monetary transactions such as deposits loans investments and currency exchange financial institutions include a broad range of business operations within the financial services sector including banks insurance companies brokerage firms and investment dealers virtually everyone living in a developed economy has an ongoing or at least periodic need for a financial institution s services investopedia nono floresunderstanding financial institutions fis financial institutions often match savers or investors funds with those seeking funds such as borrowers or businesses seeking to trade shares of ownership for funds typically this leads to future payments from the borrower or business to the saver or investor the tools for matching all of these parties up include products such as loans and markets such as a stock exchange 1at the most basic level financial institutions allow people to access the money they need for example although banks do many things their primary role is to take in funds called deposits from those with money pool the deposits and lend the money to others who need funds banks are intermediaries between depositors who lend money to the bank and borrowers who the bank lends money to this works well because while some depositors need their money at any given moment most do not so banks can use deposits to make long term loans this applies to almost every entity and individual in a capitalist system individuals and households financial and nonfinancial firms and national and local governments 2without financial institutions businesses could not grow and households could only buy goods education and housing that the families have cash for today financial institutions serve most people in some way as a critical part of any economy whether in banking insurance or securities markets individuals and companies rely on financial institutions for transactions and investing for example the health of a nation s banking system is a linchpin of economic stability loss of confidence in a financial institution can easily lead to a bank run the function of financial institutions in capital marketscapital markets are important for functioning capitalist economies because they channel savings and investments between suppliers and those in need suppliers are people or institutions with capital to lend or invest suppliers typically include banks and investors those seeking capital are businesses governments and individuals financial institutions play an important role in capital markets directing capital to where it is most useful for example a bank takes in deposits from customers and lends the money to borrowers ensuring capital markets efficient function regulationgovernments oversee and regulate banks and financial institutions because the institutions play an integral economic role bankruptcies of financial institutions for instance can create panic federal and state agencies can regulate financial institutions sometimes multiple agencies regulate the same institution 3federal depository regulators oversee commercial banks thrifts savings associations and credit unions accepting customer deposits 1the fdic insures deposits in state chartered banks and federal savings associations if a bank fails the fdic insures regular deposit accounts of up to 250 000 per depositor per institution offering this insurance reassures individuals and businesses regarding the safety of their finances with financial institutions 4 like the fdic the ncua insures deposit amounts of up to 250 000 5two federal institutions regulate products markets and market participants for securities such as stocks bonds and derivatives 1these dedicated regulators exclusively oversee government sponsored enterprises which are quasi governmental entities established to enhance the flow of credit to specific sectors of the u s economy 3currently the consumer financial protection bureau cfpb is the only national consumer entity tasked with exclusively regulating consumer products cfpb s purview includes nonbank mortgage related firms private student lenders payday lenders and other large consumer financial entities as determined by the cfpb cfpb is the rulemaking consumer protection authority for all banks and has supervisory authority for banks with more than 10 billion in assets 1states may regulate financial institutions in addition to or instead of federal regulators for example there is minimal federal oversight of the insurance industry each state government has a department that licenses and regulates insurance companies and any company selling insurance products states may also regulate banking securities and consumer protections in addition to federal regulators who work in those areas 8types of financial institutionsfinancial institutions offer various products and services for individual and commercial clients the specific services offered vary widely between different types of financial institutions here are some of the types consumers are most likely to use these financial institutions accept deposits and offers checking and savings account services make business personal and mortgage loans and provides basic financial products like certificates of deposit cds they may also act as payment agents via credit cards wire transfers and currency exchange these types of financial institution can include investment companies issue and invest in securities stocks bonds mutual funds and etfs or exchange traded funds 9 mutual funds are one example of a product offered by an investment company where many investors money is pooled and invested in stocks bonds money market instruments other securities or even cash in an ongoing manner other examples of investment related financial institutions include investment advisors and brokers brokers accept and carry out orders to buy and sell investments such as securities for customers 10among the most familiar non bank financial institutions are insurance companies providing insurance for individuals or corporations is one of the oldest financial services protection of assets and protection against financial risk secured through insurance products is an essential service that facilitates individual and corporate investments that fuel economic growth insurance is primarily regulated at the state level but the u s treasury s federal insurance office fio does monitor the industry and plays an advisory role 2