What is a financial institution?

Financial institutions are organizations specialized in the accumulation of capital and the provision of financial services to the different economic agents of society. They are companies that generally act as intermediaries and that facilitate the flow of money through the economy.

Below, you can find the different types of institutions or financial entities that currently exist, their main characteristics and the functions they perform.

Types of financial organizations

Financial institutions can be classified depending on the ownership of their capital (public banks, private or mixed), according to the activities they carry out (mortgage, savings, commercial) and according to the nationality of their capital (nationals and foreigners). However, at present, the financial systems of the countries categorize financial institutions into two types:

  • Banking institutions: these are entities whose main activity is to raise funds from the public, either in the form of money or financial resources of different kinds. Capture funds from economic agents with surplus capital to lend it to other agents with deficit. They can also issue electronic money, grant guarantees or carry out Bank transfers, among other activities.
  • Non-banking institutions: these are entities that, unlike the previous ones, cannot capture deposits from the public, although they can carry out the same activities.

What are the functions of financial entities?

Financial institutions act as intermediaries in financial markets. They are the bodies responsible for transferring funds from investors to the economic agents that need those funds. In other words, and as we have already commented previously, financial organizations favor the flow of money through the economy, thereby allowing savings to be used to facilitate loan funds.

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