financial institution definition

financial institution

Private (shareholder-owned) or public (government-owned) organizations that, broadly speaking, act as A channel between savers and borrowers of funds (suppliers and consumers of capital). Two main types of financial institutions (with increasingly blurred dividing line) are: (1) Depository banks and credit unions which pay interest on deposits from the interest earned on the loans, and (2) Non-depository insurance companies and mutual funds (unit trusts) which collect funds by selling their policies or shares (units) to the public and provide returns in the form periodic benefits and profit payouts.

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