"Warning: Saving May Be Hazardous to your Wealth"
Financial institutions such as banks, insurance companies and pension funds are also known as 'Financial Intermediaries'. They dominate the financial scene all around the globe. It is virtually impossible to spend or save or lend or invest money nowadays without getting involved with some kind of financial intermediary in one way or another. Although all have similar functions, yet they are different. They are as follow...
Banks versus Non-Banks - A Brief Comparison
A sharp distinction has been drawn between the commercial banks, on one hand, and all other financial institutions on the other, such as life insurance companies, property and casualty insurance companies, savings and loans associations, credit unions, mutual saving banks, mutual funds, and other types of nonbank financial institutions.
-Banks: according to Li and Kim (1987), "Banks facilitate trade and commerce by providing:
safekeeping for cash deposited in the current, savings and fixed deposit accounts
a convenient and a safe means of making payments through the current account, or by way of bank drafts, bank transfers and bills of exchange;
Finance in the form of loans, overdrafts or discounted bills of exchange;
Advice on financial investments or on the credit-worthiness of customers, local or abroad".
There are three types of Bank; Central Bank, Commercial Banks, and also Merchant Banks. The three will be described as the following...
The Central Bank controls the operation of the whole banking system in a country and carries out its monetary policy. Its chief functions are to issue, control and regulate the supply of money in the country; to act as a banker and financial adviser to the government; to act as banker to commercial banks; and to promote monetary stability and a sound financial structure in the country. Some examples of Central Bank are Bank Indonesia, Bank Negara (Malaysia), and while in Singapore, the Monetary Authority of Singapore.
These banks are privately-owned, profit-seeking financial institutions. According to Ritter and Silber (1989), commercial banks are the most prominent of all financial institutions. These banks are also the most widely diversified in terms of both liabilities and assets. Their major source of funds used to be demand deposits (checking accounts), but today, savings and time deposits (including certificates of deposit) have become more valuable. With these funds, such banks buy a wide variety of assets, ranging from short-term government securities to long-term business loans as well as home mortgages. The services include accepting deposits, providing a convenient means of making payments, lending to customers, as well as providing other services. Examples of Commercial Banks are Citibank, Hong Kong and Shanghai Banking Corporation, Bank Bumiputra and Malayan Banking.
Merchant banks are specialized financial institutions which complement and supplement the activities and services already offered by existing financial institutions. These banks deal mainly in medium and long-term finance for large corporations; they also provide financial services that are not provided by other existing financial institutions. Examples are Malaysian International Merchant Bankers, Merchant Bankers Malaysia, etc.
After the types of banks above, along with their descriptions, let's now turn to individual financial institutions. These institutions functions almost the same like normal banks; they are into investments and lending. However, like other institutions, they have their own rules in doing their financing businesses.
Savings and Loan Associations (S & Ls)
Before, Savings and Loan Associations (S & Ls)'s original purpose is to encourage family thrift and home ownerships, by offering mortgage loans services. These institutions have been growing rapidly since the past few decades,...
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