A financial institution is a for- profit company whose activity is the provision of financial services to the economic agents of the company.
The services of financial institutions have been sophisticated in such a way that it is often complex to delimit their activity. From the depository and the loan (classic banking services) to more modern and sophisticated services such as factoring or investment banking .
Financial institutions have not stopped reinventing themselves. In a simple way, a financial institution is a company that provides services to its clients related to their money . Recently companies are emerging that also perform these tasks, they are known as fintech companies.
Historical background of financial institutions
The background of financial institutions goes back to remote times. Already in the time of the Greeks there were lenders in charge of these tasks.
In the mercantilist era the need to store precious metals from South America created the need for a figure to provide custody . This created the figure of the first private banks. Therefore, this is considered as the germ of financial institutions as we know them today.
Types of financial institutions
Currently, countries’ financial systems classify financial institutions into two types:
- Banking institutions:This type of entity can raise funds from the public in the form of money or financial resources of different types. Its main activity is to raise funds from agents with surplus capital, to lend to agents with deficits. In addition, they can also grant guarantees and guarantees , issue electronic money or make bank transfers among other activities.
- Non-banking institutions:The main difference between these and the previous ones is that they cannot capture deposits from the public. Otherwise, they can do the same activities.