Institution

An institution is "a structure, a mechanism of social order or cooperation, which governs the behaviour of a group of individuals within a human community."[1]

An institution can be a physical entity such as a university or it can be a set of norms and values such as the institution of law. Institutions govern the behavior of those living within a society, they are diverse and vary from place to place depending of what customs exist. Institutions create and regulate society to give order and reinforce a system of values.[2]

Examples of Institutions

Figure 1. The headquarters on Deutsche Bank in Frankfurt, Germany. Deutsche Bank is a type financial institution commonly called an "investment bank" that operates worldwide. It has a number of different operations from private and business banking to corporate finance and wealth management.[3]

Financial Institution

A financial institution is a type of firm that plays a role on both sides of the market for financial goods and services. Financial institution both lend money out to consumers and borrow money from other institutions.[4]

As a borrower of funds, a financial institution borrows from a central bank at the overnight rate and lends the money to its customers. Because the firm lent the money out at a higher rate than they borrowed it for, the firm will make money.

Financial institutions perform a number of different tasks, holding deposits, loaning money, managing investments and investing, exchanging currency come in a number of forms such as:[5]

  • Banks
  • Trust & Loan Companies
  • Insurance Companies
  • Pension Funds
  • Brokerage Firms
  • Investment Firms
  • Credit Unions

In Canada for example, banks hold upwards of 70% of financial assets in the financial services sector (FSS).[4] The amount of assets held by each type of FI varies from country to country and the amount each is allowed to hold is usually determined by legislation and the regulation of the FSS.


References

  1. Verbruggen, A., W. Moomaw, J. Nyboer, 2011: Annex I: Glossary, Acronyms, Chemical Symbols and Prefixes. In IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation [O. Edenhofer, R. Pichs- Madruga, Y. Sokona, K. Seyboth, P. Matschoss, S. Kadner, T. Zwickel, P. Eickemeier, G. Hansen, S. Schlömer, C. von Stechow (eds)], Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.
  2. J. Scott. "Institution (social institution)." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199683581.001.0001/acref-9780199683581-e-1123?rskey=UVMHzD&result=7, 2016 [Aug 27, 2016].
  3. Wikimedia Commons. [Online], Available: https://commons.wikimedia.org/wiki/File:Deutsche_Bank_Taunusanlage.jpg [Aug 17, 2016]
  4. 4.0 4.1 M. Parkin and R. Bade. Economics: Canada in the Global Environment. Toronto: Pearson, 2013, pp. 546.
  5. Investopedia. "Financial Institution." [Online], Available: http://www.investopedia.com/terms/f/financialinstitution.asp?ad=dirN&qo=serpSearchTopBox&qsrc=1&o=40186[Aug 28, 2016].

Authors and Editors

Lyndon G., Celeste Pomerantz, Jason Donev
Last updated: August 29, 2017
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