In financial economics Financial economics is the branch of economics concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment". It is additionally characterised by its "concentration on monetary activities", in which "money of one type or another is likely to appear on both, a financial institution is an institution Institutions are structures and mechanisms of social order and cooperation governing the behavior of a set of individuals within a given human collectivity. Institutions are identified with a social purpose and permanence, transcending individual human lives and intentions, and with the making and enforcing of rules governing cooperative human that provides financial services Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds and some government sponsored for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries A financial intermediary is an entity that connects surplus and deficit agents. The classic example of a financial intermediary is a bank that transforms bank deposits into bank loans. Most financial institutions are highly regulated Financial regulations are a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This may be handled by either a government or non-government organization by government A government is the body within a community, political entity or organization which has the authority to make and enforce rules, laws, and regulations.[citation needed] bodies. Broadly speaking, there are three major types of financial institution[1]:
- Deposit A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank, and represent the amount owed by the bank to-taking institutions that accept and manage deposits and make loans A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower (this category includes banks A bank is a financial institution licensed by a government. Its primary activities include providing financial services to customers while enriching its investors. Many financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds. In some countries, credit unions A credit union is a cooperative financial institution that is owned and controlled by its members, and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members. Many credit unions exist to further community development or sustainable international development on a, trust companies A trust company is a corporation, especially a commercial bank, organized to perform the fiduciary functions of trusts and agencies. It is normally owned by one of three types of structures: an independent partnership, a bank, or a law firm, each of which specializes in being a trustee of various kinds of trusts and in managing estates, and mortgage loan A mortgage loan is a loan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan companies);
- Insurance companies Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating and pension funds Pension funds are important shareholders of listed and private companies. They are especially important to the stock market where large institutional investors like the Ontario Teachers' Pension Plan dominate. The largest 300 pension funds collectively hold about $6 trillion in assets. In January 2008, The Economist reported that Morgan Stanley; and
- Brokers A broker is a party that mediates between a buyer and a seller. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Distinguish agent: one who acts on behalf of a principal. A "brokerage" or a "brokerage firm" is a business that acts as a broker. A brokerage firm is a business that, underwriters Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage or credit). The name derives from the Lloyd's of London insurance market. Financial bankers, who would accept some of the risk on a given venture (historically a sea and investment funds A collective investment scheme is a way of investing money with others to participate in a wider range of investments than feasible for most individual investors, and to share the costs and benefits of doing so.
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Function
Financial institutions provide service as intermediaries of the capital and debt markets. They are responsible for transferring funds from investors to companies, in need of those funds. The presence of financial institutions facilitate the flow of money through the economy. To do so, savings are pooled to mitigate the risk brought to provide funds for loans. Such is the primary means for depository institutions to develop revenue. Should the yield curve In finance, the yield curve is the relation between the interest rate and the time to maturity of the debt for a given borrower in a given currency. For example, the U.S. dollar interest rates paid on U.S. Treasury securities for various maturities are closely watched by many traders, and are commonly plotted on a graph such as the one on the become inverse, firms in this arena will offer additional fee-generating services including securities underwriting, and prime brokerage.
Corporate valuation
Relative metrics : Price/Equity Price/Book Value
Use Equity Multiples (as opposed to Enterprise Multiples). To consider how valuing a Financial Institution's balance sheet is different from a non-Financial firm, consider how an industrial firm wields capital machinery (asset) and the loans (liabilities) it used to finance that asset. The line is blurred in Financial Institutions, which must hold deposit accounts (liabilities) to fuel the issuance of loans (assets). The same accounts are considered loans as they are held in ownership not of the bank, but of the individual client.
Dividend Discount Model : Earnings-per-share
Dividends-per-share
Discounted Cash Flow (DCF) Model : You'll need the FCFE (Free Cash Flow for Equity), which is the amount of money that is returned to shareholders. Calculate an FCFF (Free Cash Flow to the Firm): EBIT (1-tax rate) -Capital Expenditures+ (Depreciation & Amortization) - (Net increase in working capital)= FCFF
FCFF-Debt+Cash=FCFE
Use the Capital Asset Pricing Model, not the Weighted Average Cost of Capital (for the same reasons one uses Equity Multiples in relative valuation) to determine the cost of equity (the return required by shareholders to make the decision to invest in a financial institutions)
Excess Return Model : A model where valuation is expressed as the sum of capital invested currently in the firm and the present value of dollar excess returns that the firm expects to make in the future.[1]
Governance
Governance is a critical issue for financial institutions as they operate in a substantially regulated environment. Some of the key governing bodies are: In the United States: FFIEC The Federal Financial Institutions Examination Council, or FFIEC, is a formal interagency body of the United States government empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System , the Federal Deposit Insurance, Comptroller of the Currency- National Banks, FDIC-State "non-member" banks, NCUA-Credit Unions, Federal Reserve- Fed "member" Banks, Office of Thrift Supervision - National Savings & Loan Association, State governments each often regulate and charter financial institutions. In Norway, Financial Supervisory Authority of Norway The Financial Supervisory Authority of Norway is a Norwegian government agency responsible for supervision of financial companies within Norway based on law and regulations from Storting, the Norwegian Ministry of Finance and international accounting standards. The agency is located in Oslo and subordinate the Ministry of Finance. In Hong Kong, Hong Kong Monetary Authority The Hong Kong Monetary Authority or HKMA (金管局) is Hong Kong's central banking institution (more precisely, currency board). It is a government authority founded on 1 April 1993 via the consolidation of "Office of the Exchange Fund" and the "Office of the Commissioner of Banking". The organisation reports directly to the. In Russia, Central Bank of Russia The Bank of The Russian Fedration or the Central Bank of The Russian Federation (Russian: Центральный банк Российской Федерации) is the central bank of The Russian Federation. Its functions are described in the Russian constitution (Article 75) and in the special Federal law. Bank of Greatest Russia was founded on.
See also
- Bank A bank is a financial institution licensed by a government. Its primary activities include providing financial services to customers while enriching its investors. Many financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds. In some countries
- Credit union A credit union is a cooperative financial institution that is owned and controlled by its members, and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members. Many credit unions exist to further community development or sustainable international development on a
- Financial economics Financial economics is the branch of economics concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment". It is additionally characterised by its "concentration on monetary activities", in which "money of one type or another is likely to appear on both
- Savings and loan association A savings and loan association , also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States; similar institutions in the United Kingdom, Ireland and some Commonwealth countries include
- Consumer Credit Act 1974 The Consumer Credit Act 1974 was an Act of the Parliament of the United Kingdom that significantly reformed the law relating to consumer credit within the United Kingdom (UK law)
References
- ^ Siklos, Pierre (2001). Money, Banking, and Financial Institutions: Canada in the Global Environment. Toronto: McGraw-Hill Ryerson. p. 40. ISBN The International Standard Book Number is a unique numeric commercial book identifier based upon the 9-digit Standard Book Numbering (SBN) code created by Gordon Foster, now Emeritus Professor of Statistics at Trinity College, Dublin, for the booksellers and stationers W.H. Smith and others in 1966 0-07-087158-2.
External links
Categories: Financial institutions Categories: Financial institutions and services | Financial services | Economic institutions | Financial services Categories: Service industries | Financial institutions and services
Bizjournals.com
Seattle Bank is now the ninth Washington-based financial institution to come under stricter regulatory enforcement, signaling the continued downturn of the ...
Seattle Bank Signs Agreement with State and Federal Banking Regulators Earthtimes (press release)
Regulators put Seattle Bank on tighter leash Seattle Times
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Financial Aid Although Five Towns College is a modestly priced private institution we recognize that college tuition may be expensive for some students Five Towns College provides
Jessica Stillman
Mon, 20 Jul 2009 21:39:30 GM
Not letting it happen again could mean not letting banks and . financial institutions. get so big that they could bring down the entire system. And, cocky people that have to be bailed out brings them down a notch (in my book anyway!). ...
Q. I no longer work for the company that supplied the 401k but it has been sitting at a financial institution gathering interest and growing pretty well. I want to roll it over to the finance company that it is sitting at so that I can borrow against it. Is this possible?
Asked by 29moons - Tue Aug 22 16:06:36 2006 - - 2 Answers - 0 Comments
A. It seems what you are asking is if you can roll over a 401k but keep it with the same institution. If you roll the 401K over you must roll it to an IRA. There should be no reason you couldn't keep it in the same institution. You cannot borrow from IRA accounts but you could take a distribution and redeposit it within 60 days if you needed money for a short time. If you have a 401k now at a new job you could roll this one over to the new plan and possibly borrow from that plan. Not a good idea to take money out of 401k until you are 59 1/2 unless you really really need it. You end up paying at least 35% back in taxes with tax and penalties.
Answered by Bucky - Tue Aug 22 16:25:19 2006
