Types of Financial Intermediaries
We have seen why financial intermediaries play such an important role in the economy. Now we look at the principal financial intermediaries themselves and how theyperform the intermediation function. They fall into three categories: depository institutions (banks), contractual savings institutions, and investment intermediaries. Table 2.1 provides a guide to the discussion of the financial intermediaries that fit into these three categories by describing their primary liabilities (sources of funds) and assets (uses of funds). The relative size of these intermediaries in the United States is indicated in Table 2.2, which lists the amount of their assets at the end of 1980, 1990, 2000, and 2009.
We have seen why financial intermediaries play such an important role in the economy. Now we look at the principal financial intermediaries themselves and how theyperform the intermediation function. They fall into three categories: depository institutions (banks), contractual savings institutions, and investment intermediaries. Table 2.1 provides a guide to the discussion of the financial intermediaries that fit into these three categories by describing their primary liabilities (sources of funds) and assets (uses of funds). The relative size of these intermediaries in the United States is indicated in Table 2.2, which lists the amount of their assets at the end of 1980, 1990, 2000, and 2009.
Depository Institutions
Depository institutions ( are financial intermediaries that accept deposits from individuals and institutions and make loans. These institutions include commercial banks and the so-called thrift institutions (thrifts): savings and loan associations, mutual savings banks, and credit unions. checkable deposits (deposits on which checks can be written), savings deposits (deposits that are payable on demand but do not allow their owner to write checks), and time deposits (deposits with fixed terms to maturity). They then use these funds to make commercial, consumer, and mortgage loans and to buy U.S. government securities and municipal bonds. There are slightly fewer than 7,500 commercial banks in the United States, and as a group, they are the largest financial intermediary and have the most diversified portfolios (collections) of assets. Savings and Loan Associations (S&Ls) and Mutual Savings Banks These depository institutions, of which there are approximately 1,300, obtain funds primarily through savings deposits (often called shares) and time and checkable deposits. Inthe past, these institutions were constrained in their activities and mostly made mortgage loans for residential housing. Over time, these restrictions have been loosened
Depository institutions ( are financial intermediaries that accept deposits from individuals and institutions and make loans. These institutions include commercial banks and the so-called thrift institutions (thrifts): savings and loan associations, mutual savings banks, and credit unions. checkable deposits (deposits on which checks can be written), savings deposits (deposits that are payable on demand but do not allow their owner to write checks), and time deposits (deposits with fixed terms to maturity). They then use these funds to make commercial, consumer, and mortgage loans and to buy U.S. government securities and municipal bonds. There are slightly fewer than 7,500 commercial banks in the United States, and as a group, they are the largest financial intermediary and have the most diversified portfolios (collections) of assets. Savings and Loan Associations (S&Ls) and Mutual Savings Banks These depository institutions, of which there are approximately 1,300, obtain funds primarily through savings deposits (often called shares) and time and checkable deposits. Inthe past, these institutions were constrained in their activities and mostly made mortgage loans for residential housing. Over time, these restrictions have been loosened
so that the distinction between these depository institutions and commercial banks has blurred. These intermediaries have become more alike and are now more competitive with each other. Credit Unions These financial institutions, numbering about 9,500, are typically very small cooperative lending institutions organized around a particular group: union members, employees of a particular firm, and so forth. They acquire funds from deposits called shares and primarily make consumer loans.
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