Types of Financial Intermediaries

Life Insurance Companies

CONTRACTUAL SAVINGS INSTITUTION insure people against financial hazards following a death and sell annuities (annual income payments upon retirement) obtain funds from premiums that people pay to keep their policies in force and use them to buy corporate bonds and mortgages the also purchase stocks, but are limited

Fire and Casualty Insurance Companies

CONTRACTUAL SAVINGS INSTITUTION insure policyholders against loss from theft, fire, and accidents much like life insurance companies but they face the reality of major disasters so they usually use funds to buy more liquid assets their largest holding is municipal bonds, but they also buy corporate bonds, stocks, and U.S. government securities

Pension Funds and Government Retirement Funds

CONTRACTUAL SAVINGS INSTITUTION provide retirement income in the form of annuities to employees who are covered by a pension plan funds are acquired by contributions from employers and employees (may be voluntary or automatically deducted) largest assets are corporate bonds and stocks

Savings and Loan Associations (S&Ls) and Mutual Savings Banks

DEPOSITORY INSTITUTION obtain funds primarily through savings deposits (usually labeled shares) and time and checkable deposits in the past, they tended to only issue mortgage loans...but as restrictions have been loosened...they look a lot like Commercial Banks now 800

Commercial Banks

DEPOSITORY INSTITUTION raise funds by issuing checkable deposits (able to write checks against), savings deposits, and time deposits (fixed maturity terms) they use these funds to make commercial, consumer, and mortgage loans and to buy U.S. government securities and municipal bonds 6,500: largest financial intermediary

Credit Unions

DEPOSITORY INSTITUTION small cooperative lending institutions organized around a particular group: union members, employees of a firm, etc... obtain funds via deposits (called shares) and make consumer loans 7800

Mutual Funds

INVESTMENT INTERMEDIARY acquire funds by selling shares to many individuals and use the proceeds to purchase diversified portfolios of stocks and bonds allow shareholders to pool resources so that they can take advantage of low transaction costs

Investment Banks

INVESTMENT INTERMEDIARY does NOT take in deposits, does NOT lend out help corporations issue securities advise corporations on what types of securities to issue (stocks or bonds) help to sell (underwrite) the securities by purchasing them at a predetermined price and then selling them in the market may also act as deal makers and help with mergers and acquisitions

Money Market Mutual Funds

INVESTMENT INTERMEDIARY like a mutual fund but also function to some extent as depository institutions because they offer deposit-type accounts they sell shares to acquire funds and then use funds to buy money market instruments that are safe and liquid interest on such assets is paid to shareholders

Finance Companies

INVESTMENT INTERMEDIARY raise funds by selling commercial paper and by issuing stocks and bonds lend funds to consumers to make purchases