List the financial institutions that serve business, both banking and nonbanking institutions, and discuss their features.
What will be an ideal response?
A commercial bank is a profit-making institution that holds the deposits of individuals and businesses in checking and savings accounts and then uses these funds to make loans to individuals, businesses, and the government. Commercial banks in the United States are chartered by either the state or the federal government. Savings and loan associations (S&Ls) offer both savings and checking accounts and use the majority of their funds to make home mortgage loans to consumers. They were created with the primary purpose of encouraging family thrift. Savings banks are also called mutual savings banks because they are depositor owned. They are almost identical to S&Ls in their operation and are chartered by the individual states. A form of savings cooperative because they are member owned, credit unions are typically sponsored by a union, company, or professional or religious group. They typically offer no-fee or no-minimum-balance checking accounts, lower interest rates on loans, and higher interest rates on deposits.
Non banking financial institutions include insurance companies, pension funds, large brokerage houses, and commercial and consumer finance companies. Insurance companies were originally created by groups who pooled their resources to provide some financial protection for members and families should a member become disabled or die. Pension funds can be set up by a company, union, or nonprofit organization to provide for the retirement needs of its members or employees. Brokerage firms buy and sell stocks, bonds, and other assets for their customers. Finance companies use the funds to make loans appropriate to consumer and business needs. Finance companies typically charge a higher rate of interest because of the higher risk of the loans that they make. These companies also frequently require some sort of collateral for loans.
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