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Financial institutions

Bank

A bank is a commercial or state institution that provides financial services, including issuing money in form of coins, banknotes or debit cards, receiving deposits of money, lending money and processing transactions. A commercial bank accepts deposits from customers and in turn makes loans based on those deposits. Some banks issue banknotes as legal tender. Many banks offer ancillary financial services to make additional profit; for example, most banks also rent safe deposit boxes in their branches.

A bank generates a profit from the differential between what level of interest it pays for deposits and other sources of funds, and what level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate.

Credit union

A credit union is a cooperative financial institution that is owned and controlled by its members. Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union.

Credit union policies governing interest rates and other matters are set by a volunteer Board of Directors elected by and from the membership itself. Only a member of a credit union may deposit money with the credit union, or borrow money from it.

Credit unions typically pay higher dividend (interest) rates on shares (deposits) and charge lower interest on loans than banks. Credit union revenues (from loans and investments) do, however, need to exceed operating expenses and dividends (interest paid on deposits) in order to maintain capital and solvency.

Credit unions offer many of the same financial services as banks, including share accounts (savings accounts), share draft (checking) accounts, credit cards, and share term certificates (certificates of deposit) and online banking.

 

Savings and loan association

A savings and loan association is a financial institution which specializes in accepting savings deposits and making mortgage loans. They are often mutually held (often called mutual savings banks). It means that the depositors and borrowers are members with voting rights and have the ability to direct the financial and managerial goals of the organization.

Non-banking financial company

Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. However, operations are still exercised under bank regulation.

NBFCs frequently acts as suppliers of loans and credit facilities. They support investments in property and provide services relating to events within peoples lives (funding private education, wealth management and retirement planning). They are typically not allowed to take deposits from the general public and have to find other means of funding their operations such as issuing debt instruments.


Date: 2015-12-11; view: 588


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