Financial institution

A financial institution, sometimes called a banking institution, is a business entity that provides service as an intermediary for different types of financial monetary transactions.

Types

Broadly speaking, there are three major types of financial institution:

Depository institution – deposit-taking institution that accepts and manages deposits and makes loans, including bank, building society, credit union, trust company, and mortgage broker;

Contractual institution – insurance company and pension fund

Investment institution – investment bank, underwriter, and other different types of financial entities managing investments.

Financial institutions can be distinguished broadly into two categories according to ownership structure:

commercial bank

cooperative bank

Some experts see a trend toward homogenisation of financial institutions, meaning a tendency to invest in similar areas and have similar business strategies. A consequence of this might be fewer banks serving specific target groups, and small-scale producers may be under-served. This is why a target of the United Nations Sustainable Development Goal 10 is to improve the regulation and monitoring of global financial institutions and strengthen such regulations.

Standard settlement instructions

Standard Settlement Instructions (SSIs) are the agreements between two financial institutions which fix the receiving agents of each counterparty in ordinary trades of some type. These agreements allow the related counterparties to make faster operations since the time used to settle the receiving agents is conserved. Limiting each subject to an SSI also lowers the likelihood of a fraud. SSIs are used by financial institutions to facilitate fast and accurate cross-border payments.

Regulation

Financial institutions in most countries operate in a heavily regulated environment because they are critical parts of countries' economies, due to economies' dependence on them to grow the money supply via fractional-reserve banking.