Financial intermediaries, including depository institutions (commercial banks, savings banks, credit unions) and insurers (life, health, property and casualty), can be grouped by the composition of their balance sheets (nature of their assets and liabilities and the asset transformations they undertake) or their ownership structure, the origin of their corporate charters, and/or the identity of their regulators.
Like financial markets, financial intermediaries are highly specialized. Sometimes called the indirect method of finance, intermediaries, like markets, link investors/lenders/savers to borrowers/entrepreneurs/spenders but do so in an ingenious way, by transforming assets.
Financial intermediaries are sometimes categorized according to the type of asset transformations they undertake.
Due to deregulation, though, the lines between different types of depository institutions have blurred in recent years.
Insurance companies are also divided between mutual and joint-stock corporations. They issue contracts or policies that mature or come due should some contingency occur, which is a mechanism for spreading and sharing risks.
The third major type of intermediary is the investment company, a category that includes pension and government retirement funds, which transform corporate bonds and stocks into annuities, and mutual funds and money market mutual funds, which transform diverse portfolios of capital and money market instruments, respectively, into non-negotiable but easily redeemable “shares.”
Wright, Robert E., , and Vincenzo Quadrini. Money and Banking. 2009 . Flat World Knowledge. 27 Jun, 2009.
