What is the meaning of financial institutions?
Financial institutions provide consumers and commercial clients with a wide range of services and various types of banking products. The importance of financial institutions for the wider economy is obvious during market boom and recession. During economic ascension, financing institutions provide financing that control economic growth and restrict borrowing banks during recessions. This can worsen the country's financial problems and draw attention to the fact that the economies rely strongly on the financial sector. In many countries, banks are encouraged or even forced to lend money to buyers and small businesses. Easily avnemovable loans support consumer expenditures and this expenditure leads to economic growth.
Consumers are often either cash people looking for revenues from their money, or people without cash who have to borrow money to cover their short -term expenses. Banks act as intermediaries between theseabout two groups. People with cash lend money to their backs in return for nominal interest rate and banks lend to consumers the same money for a much higher interest rate. The difference between the price that the bank pays off and the price it charges to its own customers to borrow allows the bank to generate profits. In many cases, the importance of financial institutions is most vivid during recessions when savings do not receive cash and banks lack cash to finance consumers lending.
Financial institutions offer different types of insurance, from life insurance to mortgage insurance. Insurance companies and banks also provide other financial institutions. If one bank becomes insolvent, its losses are partially absorbed by the other institutions that insured it. In some cases, this may lead to a systemic risk that describes the risk that the collapse of the main banks will have a filter down for other banks and the economy as a whole.
when the main banks and insuranceCompanies will become insolvent, government regulatory bodies are reminiscent of the importance of financial institutions for the economy and the risk presented by a systemic risk. In many countries, regulators regularly audit financial institutions to try to solve short -term cash flow problems before these problems develop on major banking industry problems. In many countries, government regulators have deposited ceilings on the amount of loans that the bank can write and the amount of insurance contracts that every company can issue. The purpose of such movements is to ensure that no bank is so important for E that its failure could question the health of the whole economy.