Definition
The term non-bank financial institution refers to companies that offer financial services, but do not hold banking licenses and cannot accept deposits. Insurance companies, brokerage firms, and companies offering microloans are examples of non-bank financial institutions.
Explanation
A non-bank financial institution (NBFI) is an organization that provides financial services, but is not a licensed bank and is not allowed to accept deposits from customers. The types of services offered by a NBFI typically fall into the following categories:
Risk Pooling Institutions: organizations such as insurance companies that spread financial risk among a large number of entities.
Institutional Investors: organizations such as pension funds and mutual funds that trade securities in volumes that qualify for lower commissions.
Other Non-Bank Financial Institutions: organizations that provide financial services such as leasing of assets, market makers (who provide liquidity), management companies, financial advisors, and securities brokers.
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