copyright © 2002 pearson education, inc. slide 12-1 table 12.1 financial intermediaries in the...
TRANSCRIPT
Copyright © 2002 Pearson Education, Inc. Slide 12-1
Table 12.1 Financial Intermediaries in the United States
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Figure 12.1 Financial Assets of U.S. Insurance Companies
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Figure 12.2 Assets of Pension Funds
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Securities Market Institutions Securities market institutions reduce matching
costs and provide risk-sharing, liquidity, and information services.
Investment banks help raise new capital in primary markets.
Brokers and dealers help facilitate exchange in secondary markets.
Securities may be traded through exchanges or in over-the-counter markets.
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Investment Institutions
Investment institutions raise funds to invest in loans and securities.
Mutual funds convert small individual claims into diversified portfolios.
Finance companies sell securities to make small loans to households and businesses.
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Contractual Saving:Insurance Companies
Contractual saving institutions transfer risk and provide means for disciplined savings.
Insurance companies write contracts to protect risk of loss from particular events.
“Law of large numbers” enables insurance companies to predict loss for large groups.
Insurance companies face problems of adverse selection and moral hazard.
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Contractual Saving: Pension Funds
Pension funds invest to provide for retirement benefits.
Defined contribution plan: benefit is based on invested contributions.
Defined benefit plan: benefit is based on earnings and years of service.
Defined contribution plans are fully funded. Defined benefit plans may be underfunded.
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Depository Institutions
Commercial banks accept deposits and make loans and offer other services.
Borrowers with smaller credit needs rely on depository institutions.
Savings institutions suffered from maturity mismatch which led to a crisis.
Credit union members work at the same firm or in the same industry.
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Government Financial Institutions
Federal credit agencies make loans in the interest of public policy.
U.S. government lends to farmers, to the housing market, and to students.
U.S. government also guarantees loans made by private financial institutions.
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Table 12.2 Services Provided by Financial Intermediaries
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Financial Institutions: Blurring the Lines
During the 1930s, barriers were created that restricted competition across providers.
Now financial services are organized more by function than by provider identity.
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 removed many of the regulatory lines among financial institutions.