Banking is a financial institution but all financial institutions are not bank-Illustrate & Explain


An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loan, and invests in securities; collects checks, drafts, and notes; certifies depositor’s checks; and issues drafts and cashier’s checks. (Investorwords)[1]

The term bank came from the French word “Banco” which means a Benchor Money exchange table. In olden days, European moneylenders or moneychangers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging. A bank is a financial institution, which deals with deposits and advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it. Oxford Dictionary defines a bank as “an establishment for custody

Financial institution:

A financial institution is an establishment that focuses on dealing with financial transactions, such as investments, loans, and deposits. Conventionally, financial institutions are composed of organizations such as banks, trust companies, insurance companies, and investment dealers. Almost everyone has deal with a financial institution on a regular basis. Everything from depositing money to taking out loans and exchange currencies must be done through financial institutions. (Investopedia)[2]

In Financial economics, a financial institution is an institution that provides financial services for its clients or members. The government regulates most financial institutions. (Wikipedia, the free encyclopedia)[3]

In other words, a financial institution is a private (shareholder-owned) or public (government-owned) organizations that, broadly speaking, act as a channel between savers and borrowers of funds. (BusinessDictionary)[4]

Types of financial institution:

There are two major types of financial institutions: banks (i.e., deposit-type financial institutions) and nonbanks (i.e., non-deposit-type financial institutions). Deposit-type financial institutions mainly fall under four classifications: commercial banks, savings and loan associations, credit unions, and the newer Internet banks. Nonbank financial institutions consist of two main kinds: mutual funds companies and brokerage firms.

Deposit-type financial institutions mainly fall under four classifications: commercial banks, savings and loan associations, credit unions, and the newer Internet banks.

Commercial banks generally compete by offering the widest variety of services; however, they generally do not offer the highest interest rates on deposits or the lowest interest rates on loans.

Savings and loan associations have slightly different ownership arrangements than banks, but they are similar to commercial banks. Savings and loan associations may offer slightly higher rates than commercial banks on deposits and somewhat lower rates than commercial banks on loans.

Credit unions are similar to savings and loan associations, but they are not-for-profit organizations and are owned by their members. They can sometimes offer higher rates on savings accounts and lower rates on loans because they are not driven to provide a profit to shareholders.

Internet banks are electronic banks that do not have traditional brick-and-mortar branches. Because they have fewer branches, employees, and capital expenditures than traditional banks, they can generally pay higher interest rates on deposits and charge less for loans than traditional banks do.

Nonbank financial institutions consist of two main kinds: mutual fund companies and brokerage firms.

Mutual fund companies have broken into the banking arena. With many mutual fund companies, you can now write checks against your mutual fund account. Brokerage firms have also gotten into the act. Many brokerage firms now allow you to write checks, issue credit cards and ATM cards, and make loans. Brokerage firms offer these and many other account features that were once reserved for traditional banks.

Both banks and nonbanks offer online financial services; these services allow you to access bank balances and other resources twenty-four hours a day. With the blurring of roles between deposit and non-deposit institutions, banks can now offer investment services and non-banks can offer check-writing privileges, credit cards, and savings accounts. (Personal Finance)[5]

Difference between Bank and Financial Intuition:

Banks accept customers’ deposits kept in checking or savings accounts, issue pay checks, and channel their customers’ money into investments. They make profit from charging interest on loans and from charging for their services. Banks are not allowed to lend all their money–they have to keep some in their reserves–so that in normal circumstances, customers can get their money at any time.

Non-banking financial sector includes a wide variety of companies. Investment and merchant banks deal in stocks and raise capital for firms, venture capital companies provide initial funds for promising businesses, insurers provide insurance to companies and individuals and so on. On the other end of the spectrum are exchange offices, pawn shops and check cashing offices.

Main Differences:

The main advantage of banks over non-banking companies is that they provide a wide variety of financial services under one roof. On the other hand, non-banking financial companies focused on one or just a few related services, often offer more competitive rates than banks. Also, they are more willing to enter deals or work with customers banks consider too risky. From the outside, bank and financial institution seem very similar. They both offer checking and savings accounts, financial products like CDs and specialized accounts, and the rest of the services we’ve come to expect. You drive through teller windows or stop in at a branch, deposit your checks or withdraw money, and occasionally meet with personnel to discuss your financial needs. ATMs, debit and credit cards, loans and mortgages are all on the menu at most banks and credit unions. You give them your money, and they give it back. But under the surface, the two types of financial institutions couldn’t be more different. You may have noticed how excited and involved credit union (CU) members tend to be with their institutions, or the reputation CUs have for being small, regional or community-oriented. Perhaps you’ve heard about the intense lobbying the banking industry regularly levels against credit unions and wondered why it’s so aggressive. There are benefits and costs to both operations, of course. But learning about the way credit unions work — and what sets them apart from banks — gives some interesting insights into the way we deal with money in this country. Most of us don’t use half the opportunities our financial institutions offer because it can be so overwhelming to make decisions about these things. For many of us, it’s hard enough just making sure our checks don’t bounce at the end of the month. A Bank is an organization that accepts customer cash deposits and then provides financial services like bank accounts, loans, share trading account, mutual funds, etc. A NBFC (Non Banking Financial Company) is an organization that does not accept customer cash deposits but provides all financial services except bank accounts.

A bank interacts directly with customers while an NBFIinteracts with banks and governments. A bank indulges in a number of activities relating to finance with a range of customers, while an NBFI is mainly concerned with the term loan needs of large enterprises, a bank deals with both internal and international customers while an NBFI is mainly concerned with foreign companies. A bank’s man interest is to help in business transactions and savings/ investment activities while an NBFI’s main interest is in the stabilization of the currency. It is a tough task to compare bank and financial institutions owing to the fact there exist several financial institutions, and each of these differ from banks by a significant extent. Basically, differentiating between banks and financial institutions is similar to comparing a deposit taking financial institution with a non-deposit taking financial institution. (If those criteria are taken into consideration both financial set-ups differ from each other on the basis of depositing facility, which is only provided by banking institutions as opposed to their non-banking counterparts. That’s true to a certain extent, but it is by no complete. Even though banks are deposit taking financial institutions themselves, they can at times differ from other deposit taking financial institutions as well. For instance, credit unions also allow consumers to deposit (or borrow) money, but in order to avail this facility you need to be a member of this credit union and by becoming a member of the credit union you automatically become one of its owner. Yet another noteworthy difference between a bank and a finance company is the fact that former indulges in various business transactions, savings as well as investment, while the latter mainly focuses on investment and stabilization of currency. When it comes to financial matters, it is very important to understand the basics of various tools of savings and tools of investment. The large-scale development that the economy has undergone over the last few years has also made it more vulnerable to several economic issues. In such circumstances, it is better off to ensure a no-problem future for yourself, and that’s exactly where knowledge about the basics of economics will come handy for you.

Special sales transaction and bankruptcy:

A special sales transaction, in other words a kind of balance-sheet sales, is realized here; the purchaser chooses the assets and liabilities they want and a separate balance-sheet (closing balance-sheet) is prepared for the transfer transaction. Up to now, many bank sales have been realized through this method and these banks have been kept active in the system. For example Sümer bank, having problem banks under its structure was sold to Oyak Group and Demir bank was sold to HSBC Group by the Fund. Process up to the sale of a bank taken over by the Fund through this method will be explained under a separate. Another parenthesis would be opened for the case that the proceeding for the bankruptcy of the bank had been initiated before the resolution of the transfer. In such a case, the financial structure of the bank necessitates the transfer of the bank to the Fund and after having such resolution the arising of bankruptcy result would be prevented due to the reasons such as the above-mentioned blanket guarantee, the fact that the Fund guarantees the debts and the bank’s new position of being able to pay its debt with the resources transferred by the Fund. It is also possible for the Board to make a decision of the revocation of the banking license of the bank, not the transfer of its management and supervision. Accordingly, the execution and bankruptcy proceedings initiated will be suspended. It is important to mention another probability when we take into consideration that there are basically two methods of bankruptcy in our law. This probability is whether or not direct bankruptcy of the bank taken over by the Fund can be demanded. We have stated above that many of the reasons requiring direct bankruptcy of a bank as a normal joint stock corporation are in fact caused the bank to be taken over by the Fund. Analytically, the opposite of this legal proposition is also correct. Namely, reasons requiring the bank to betaken over by the Fund may in fact be the situations in which direct bankruptcy of the bank could be demanded. As there will not be any change in the legal entity status of the bank as result of the take over, it is said that theoretically bankruptcy of the bank could be asked.


After seeing all the facts we can see that “Banking is a financial institution but all financial institutions are not bank.”


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[1] Investorwords. (n.d.). Bank. Retrieved 10, 14, 2012, from[2] Investopedia. (n.d.). Financial Institution – FI. Retrieved 10 10, 2012, from Investopedia:
[3] Wikipedia, the free encyclopedia. (n.d.). Financial institution. Retrieved 10 13, 2012, from Wikipedia, the free encyclopedia:
[4] BusinessDictionary. (n.d.). financial institution. Retrieved 10 12, 2012, from BusinessDictionary:
[5] Personal Finance. (n.d.). Know the Different Types of Financial Institutions. Retrieved 10 11, 2012, from Personal Finance: