With The Application Of Banking Theories, Differentiate Between The Terms 'banks' And 'non Bank Financial Institutions' (Nbf Is)?

765 words - 4 pages

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 b ...view middle of the document...

According to Drake (1980), NBFI becomes more important as populations become wealthier, as people can afford to pay for the services of life and general insurers, accumulate savings for old age, and use consumer credit from finance companies. Types of nonbank include:1. insurance companies, can be divided into two:- life insurance companiesAccording to Mishkin (2003), life insurance companies insure people against financial hazards following a death and sell annuities. They acquire funds from the premiums that people pay to keep their policies in force and use them mainly to buy corporate bonds and mortgages- fire and casualty insurance companiesAccording to Mishikin (2003), these companies insure their policyholders against loss from theft, fire and accidents. They are very much like life insurance companies, receiving funds through premiums for their policies, but they have a greater possibility of loss of funds if major disasters occur.2. Pension funds, according to Brigham. et al (1999), pension funds are retirement plans funded by corporate government agencies for their workers and it is administered generally by the tr...

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