Friday, April 24, 2009

financial institutions

Every day, people lend money to a large number of borrowers, including the U.S. government, IBM, the local hardware store, or their neighbors, without even knowing it. They don‘t approach these borrowers directly through financial markets, but indirectly through financial institutions acting as intermediaries. Financial intermediaries are institutions such as commercial bank, credit union, savings and loan associations, mutual savings banks, mutual funds, finance companies, insurance companies, and pension funds that borrow funds from savers and lend them to borrowers. When you deposit money in savings account, the bank can lend it to a local business. Similarly, when you contribute to a pension plan, the fund managers invest your retirement savings in shares of Mitsubishi,U.S. Treasury bonds, or other financial instruments .
Problems in financial institutions have been big news in the united states recently, particularly the deposit insurance crisis in the 1980s and early1990s. The eventual cost to taxpayers for this crisis is estimated to be as high as $200 billion. this crisis led to bank regulatory reforms, the effects of which are the subject of vigorous political debate. anther controversy has arisen over whether other financial institutions , especially pension funds, insurance companies, and mutual funds, may also be heading for financial crises that would require even more tax funds to resolve.

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