Definition
The term financial institution refers to companies that provide services such as investment advice and conducting transactions involving money. Financial institutions include companies operating in industries such as banking, insurance, and underwriting.Explanation
Financial institutions (FI) are companies that provide services that deal with money or assets. The term is used to describe companies operating in a number of industries, including both private companies as well as government run or sponsored organizations. At a very high level, financial institutions act in an intermediary role between those that are saving money and those that are spending it.
Generally, financial institutions fall into the following subcategories:
Depository Institutions: includes banks, credit unions, as well as other companies that accept deposits from their clients.
Investment Institutions: includes underwriters and brokerage houses in addition to investment banks.
Contractual Savings Institutions: includes pension funds and insurance companies, which obtain funding through longer-term contractual agreements and use those funds to invest in capital markets.
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