Structure of Financial Institutions

1
Topic 2 Economic and Regulatory Environment of
FIs

• Structure of Financial Institutions
• Regulation of Financial Institutions
• Financial Market and Globalisation

2
Structure of Financial Institutions

• Structure of Financial Institutions
• Generally, FIs can be structured into two broad
  categories Depository and non-depository
  institutions.
• Depository institutions Commercial banks,
  savings loans associations, mutual savings
  banks, credit unions.
• Non-depository institutions insurance
  companies, finance companies, investment houses
  etc.
• In the Caribbean e.g., Jamaica Depository
  institutions, money services businesses/institutio
  ns, other non-depository institutions.

3
Economic Environment of FIs
Financial markets
Capital market
Money market
Secondary market
Exchange over-the-counter market
Primary market
Financial Institutions

• Investment institutions
• Finance companies
• Mutual funds
• Money market mutual funds

• Depository institutions
• Commercial banks
• Savings loans associations
• Mutual savings banks
• Credit unions

• Contractual savings institutions
• Life insurance companies
• Non-life insurance companies
• Pension funds

4
Regulation of FIs

• FIs are one of the most highly regulated business
  institutions in the economy.
• Regulation of FIs covers several areas of their
  activities and it is used for different reasons
• Increase market information
• Ensure soundness of FIs
• Restrict entry
• Ensure disclosure of information on activities
  (reporting)
• Restriction on assets and activities
• Ensure healthy competition
• Interest rates control
• Ensure effectiveness of monetary policy

5

• FIs are usually regulated by the Central Bank and
  Ministry of Finance in any particular country,
  through various Acts of legislation.
• Different FIs are regulated by different
  regulatory bodies whose activities are often
  subjected to overall supervision of the Central
  Bank.
• Regulatory framework in Jamaica
• - Bank of Jamaica (BOJ)
• Banking Acts - commercial banks
• The Financial Institutions Acts -Merchant banks
  and Finance houses
• The Building Societies Acts Building societies
• Money Services Businesses Cambios, Bureaux de
  Change, Remmitance Companies.

6

• Financial Services Commission (FINSAC) -
  Insurance, Securities Firms/Dealers, Unit
  Trusts, Pension Funds, Mutual Funds
• Jamaica Deposit Insurance Corporation (JDIC)
  acts as insurer to FIs
• Further Readings
• http//www.boj.org.jm/supervised_deposit.php
• http//www.jdic.org/
• http//www.eccb-centralbank.org/Financial/index.a
  sp

7
Financial Market and Globalisation

• Globalisation has led to integration of financial
  markets world wide.
• It has facilitated the transaction of financial
  assets/instruments across geographical
  boundaries.
• - foreign bonds, Eurobond, Eurocurrencies,
  Eurodollars.
• Stiff competition in the financial market
  movements in international interest rates.
• Globalisation has led to high financial
  contagion.