Among the major types of financial institutions include commercial banks, the largest and most popular financial institutions that relies on savings accounts and checking as sources of funds for loans to individuals and businesses. Others include savings and loan associations, credit unions, investment banks and companies, insurance companies, brokerage firms, mortgage firms, savings and loan associations, and internet banks. The identified financial institutions play a substantial role in the financial system through funding businesses through loans hence facilitating economic growth, giving financial advice, storing finances through deposit accounts, offering savings and loan services and promoting liquidity of money in the financial system (Kidwell et al., 2016).
In addition, some financial institutions such as insurance companies protect individuals and businesses against financial loss through property damage, accidents among other risks. In addition, most financial institutions work closely with investors assisting in securities trade to facilitate the achievement of financial goals through providing training forums.
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Different instances of the financial crisis have affected the financial institutions following cases where financial assets suddenly lose a large part of their nominal value (Kidwell et al., 2016). The 2008 financial crisis is the most recent crisis that affected financial institutions including commercial banks causing them to lose money on mortgage defaults. In addition, the crisis caused a dry upon business credit and froze the lending operations by the financial institutions. The financial crisis introduces low liquidity, high-interest rates that reduced interest on loans offered by the financial institutions, low financial asset prices, and unsustainable current monetary policy.
Furthermore, the institution’s dividends got slashed by the crisis, common stocks of banks got crushed and the financial institutions lost investors who lost their money invested in the banks. In addition, a considerable number of banks merged with stronger partners in order to remain strong in the market (Kidwell et al., 2016). As a result of the financial crisis, some financial institutions had to be bailed out by the government to withstand the crisis. Hitherto, there still are some effects of the financial effects influencing the operation of the financial institutions.
References
Kidwell, D. S., Blackwell, D. W., Sias, R. W., & Whidbee, D. A. (2016). Financial institutions, markets, and money . John Wiley & Sons.
