The functions and regulations of financial institutions have changed since our most recent recession and will likely continue to be governed at a higher level going forward. This is critical for the success of our future economy.
Financial institutions help provide opportunity for our economic growth and improve our living standards. They do this by assisting as a liaison for those who have savings (dollars) and those who have a need for capital. Institutions typically will raise dollars from other institutions or individuals then loan those dollars to other entities at a cost (interest rate). This is how financial institutes help aid the flow of money through our economy.
There are several types of financial institutions, such as banks, credit unions, brokerage companies, insurance companies and trust companies — all of which have different primary functions and assist with the transferring of funds from investors to companies in need of funds.
Banks are corporations with a state or federal charter, which can accept deposits, invest in securities and make loans to businesses or individuals. Loans are considered to be the most valuable assets for commercial banks and deposit accounts are their main liability. Some banks may provide other financial services for its members. Banks are regulated on a federal level and have government protection for their depositors (FDIC insurance).
FDIC insures depositor accounts for commercial banks and most non-bank thrift institutions, such as credit unions. Credit unions have similar services as banks but are focused more for small savers and checkable type of transactions. They provide lending services and are owned by their members.
Brokerage companies are large corporations and are an intermediary to investors and investment companies. They offer financial services typically to buy and sell stocks for clients.
An insurance company is another type of financial institution that offers investment vehicles for investors along with other products which may provide financial protection by way of insuring businesses or individuals.
These financial institutions are the backbone of our economy. With improved regulation, we hope they will continue to prosper and develop a strong foundation for our country.
For more information about the financial institutions discussed in this column, visit jacobgold.com.
Securities and investment advisory services offered through ING Financial Partners, Inc. Member SIPC. Jacob Gold & Associates, Inc. is not a subsidiary of nor controlled by ING Financial Partners, Inc.This information was prepared by Michael Cochell of Jacob Gold & Associates, Inc. and is for educational information only. The opinions/views expressed within are that of Michael Cochell of Jacob Gold & Associates Inc. and do not necessarily reflect those of ING Financial Partners or its representatives. In addition, they are not intended to provide specific advice or recommendations for any individual. Neither ING Financial Partners nor its representatives provide tax or legal advice. You should consult with your financial professional, attorney, accountant or tax advisor regarding your individual situation prior to making any investment decisions.