Classification and types of financial institutions

Classification Or Types Of Financial Institutions

In financial market there are many types of financial institutions or intermediaries exist for the flow of funds. Some of them involve in depositary type of transactions whereas other involve in non-depositary type of transactions. The type of financial institutions can be divided into two types as follows:

1. Depository Institutions
The depository types of financial institutions include banks, credit unions, saving and loan associations and mutual saving banks

* Commercial banks
Commercial banks are those financial institutions, which help in pooling the savings of surplus units and arrange their productive uses. They basically accepts the deposits from individuals and institutions, which are repayable on demand. These deposits from individuals and institutions are invested to satisfy the short-term financing requirement of business and industry.

* Credit Unions
Credit unions are cooperative associations where large numbers of people are voluntarily associated for savings and borrowing purposes. These individuals are the members of credit unions as they make share investment along with deposits. The saving generated from these members are used to lend the members of the union only.

* Saving And Loan Associations
Saving and loan associations are the financial institutions involved in collecting funds of many small savers and lending these funds to home buyers and other types of borrowers.

* Mutual Saving Banks
Mutual saving banks are more or less similar to saving and loan associations. They primarily accepts savings of individuals and they are lent to the home users and consumers on a long-term basis.

2. Non-depository Institutions
Non-depository institutions are not banks in real sense. They make contractual arrangement and investment in securities to satisfy the needs and preferences of investors. The non-depository institutions include insurance companies, pension funds, finance