Financial Institutions are organizations that connect those with funds to invest and those who need funds.
Some of these organizations are depository institutions, including commercial banks, savings banks, and credit unions; others are investment companies, including securities firms, mutual funds, and investment banks. Insurance companies and pension funds are also financial institutions.
Financial institutions are distinguished from other types of businesses in that they offer financial services, which are non-tangible products that help individuals, businesses, and even government entities with their financial affairs. Because of their product base, financial institutions have assets and liabilities that are largely financial, as compared to the real assets (plant and equipment, inventory) that characterize non-financial firms. Financial institutions therefore are continuously exposed to financial market movements, and as a result Financial Institutions Management is an extremely important area within Finance.
New information technology and industry deregulation have caused considerable change in the financial institutions sector in recent decades. In the U.S., there has been considerable consolidation among financial firms, particularly banks, creating large holding company entities that operate on a multi-state basis. The financial industry has also experienced “convergence,” wherein deposit-taking banks may now legally be combined with securities firms, insurance companies, and other types of financial institutions – a practice that had been illegal from the Great Depression until the start of the new millennium.
Computerization and cost cutting have eliminated many jobs that long attracted college graduates to the Financial Institutions Management sector. Among professional jobs that remain, there can be more emphasis on the marketing of financial products than on the internal management of financial firms. This change has opened new career paths in the financial industry, with required skills that differ from those needed in the past. In this new environment, financial institution executives not only must have considerable financial knowledge, but also must possess sales skills and an expanded knowledge of information technology.
