With the application of banking theories, differentiate between the terms 'banks' and 'non-bank financial institutions' (NBFIs)?

Essay by jaine82University, Bachelor'sB+, April 2005

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Banks and other non bank financial institutions have an important effect on the performance of the economy because they are the one to make the financial markets work. Without them, financial markets would not be able to move funds from people who save to people who have productive investment opportunities.

Banks and nonbanks are almost similar since they both act as an intermediary providing services to their customers. But they are also different in some ways, including the benefits, products and services that they offer, which will be discussed below.

According to Mishkin (2003), Banks are financial institutions that accept deposits and make loan. Firms that come under the term bank include:

1. Commercial banks, originally concentrated on meeting the needs of business and industry. They served places where business could safely deposit their funds or borrow money when necessary. Many commercial banks also made loans and offered accounts to individual customers but they put most of their effort into serving business (commercial) customers.

2. Savings and loan associations are classified as thrift institutions rather than banks and they concentrated on serving people whose banking needs were not met commercial banks. S &Ls accepted savings deposits and used the money to make loans to homebuyers, (obtained from the banking mini lessons).

3. Mutual savings banks, according to Mishkin (2003), this is similar to a S & Ls. They raise funds by accepting deposits and use them primarily to make mortgage loans.

4. Credit unions, credit unions were started by people who shared a common bond such as working at the same factory, belonging to the same house of worship, or farming in the same community. Members pooled their savings and used the money to make small loans to one another, (obtained from the banking mini lessons).

While according to Mishkin...