FINANCE AND FINANCIAL MARKETS

3,6

Types of financial intermediaries
Financial institutions are like most other businesses in that they exist to make a profit and this is maximized by minimizing their costs and maximizing their revenue. Like most firms they can only survive if they design and sell products and services that can meet demand at a reasonable profit level.

We now proceed to look at some of the key types of financial institutions that are involved in the process of financial intermediation; that is, the transfer of funds

between surplus and deficit agents. We distinguish between deposit-accepting institutions, such as banks and savings institutions, and other types of financial intermediaries, such as insurance companies, mutual funds/unit trusts, pension funds, hedge funds and private equity and the like.

3.7 deposit institution an institution such as a bank or savings institution that accepts cash deposits

Deposit institutions
Deposit institutions accept deposits from economic agents. These funds become their liabilities which they then on-lend to make direct loans or investments, which become their assets. Deposit-taking institutions aim to make a profit in the way of 'spread income' between the cost of the deposits that they accept and other sources of funding, and the return that they receive on their investment portfolio in the way of loans, equity stakes and other investments. Examples of deposit institutions include commercial banks, savings banks and building societies. The deregulation trend in the 1980s meant that in many countries there was increasing overlap between various

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