Page 150 - Bus101FlipBook

8-16 Money, Banking & Financial Institutions [CH 8

depositors. While credit unions tend to be relatively small, with only 30 percent having
assets of $5 million or more, they exist in every state and claim nearly 104 million
members comprising 45.4 percent of the economically active population.

While credit unions have traditionally concentrated on short-term consumer loans
and savings deposits, their operating flexibility has been increased as a result of
deregulation. As mentioned earlier, they offer an interest-bearing checking account
called a share draft account and can make long-term mortgage loans. Other services

available to member depositors and borrowers typically include life insurance at
competitive rates and financial counseling.
As a credit union is a cooperative, it enjoys certain protections under the Sherman
Anti-Trust act as do all cooperatives—the key to this is that cooperatives are member

owned and the credit union is also member owned.
CoBank is part of the Farm Credit System, a $78 billion nationwide network of
banking institutions created by Congress in 1916. CoBank offers its customers a wide
variety of products and services at competitive interest rates, such as Farm Co-Op

Loans, in part because it is a federally chartered and regulated Farm Credit Bank.
Most of the CoBank’s customers are agricultural cooperatives that process, market,
transport, and export agricultural products as diverse as beans, fruits, vegetables,
grains, cotton, dairy, livestock, and fish. In 2019 its net income was $1.1 billion with

$10.5 billion in equity and $145 billion in total assets.

Non-deposit Institutions
Other sources and users of funds include insurance companies, pension funds,
insurance company consumer and commercial finance companies. An insurance company provides
Business that provides
protection for policyholders financial protection for policyholders who pay premiums. Insurance companies use the
in return for premium funds generated by premiums to make long-term loans to corporations and commercial
payments. real estate mortgages and to purchase government bonds.
A pension fund is a large pool of money set up by a company, union, or nonprofit
pension fund
Funds accumulated by a organization for the retirement income needs of its employees or members. According
company, union, or to the pension fund's rules, a member may begin to collect a monthly allotment on
nonprofit organization for retirement or upon reaching a certain age. Pension fund managers, like managers of
the retirement income insurance companies, are able to predict the approximate amount of money they will
needs of its employees or
members. have to pay in benefits over a given period, a function of financial management. Like
insurance companies, pension funds invest in long-term mortgages on commercial
property, business loans, and government bonds. In addition, they often purchase
common stock in major firms. When a corporation establishes a pension fund, a

portion of the fund is likely to be invested in the firm's stock. Total assets of all
private, state, and local government pension plans are more than $28 trillion.
Consumer and commercial finance companies offer short-term loans to borrowers
who pledge tangible items such as inventory, machinery, property, or accounts

commercial finance receivable as security against nonpayment. A commercial finance company, such as
company Commercial Credit or CIT, supplies short-term funds to businesses unable to borrow
Financial institution that enough needed funds from banks. In some cases, these businesses cannot secure bank
makes short-term loans to loans because they are relatively new and lack sufficient credit history or otherwise fail
businesses that pledge
tangible items such as to meet the bank's lending standards. In other instances, firms may have borrowed to
inventory, machinery, or the limit from banks and, therefore, must turn to other sources for additional funds.
property as collateral. Since these loans typically involve greater risks, commercial finance companies
typically charge higher interest rates than commercial banks and thrift institutions. The

consumer finance company (frequently called a personal finance or small loan
consumer finance company) has traditionally served a similar role for personal loans. In recent years,
company they have become increasingly competitive with banks and thrift institutions and are
Financial institution that frequently able to offer more attractive loans with longer terms. Household Finance
makes short-term loans to
individuals, typically acquired Beneficial Finance in 1998 and is a major consumer finance company.
requiring collateral; also Consumer and commercial finance companies obtain their funds from the sale of
called personal finance or bonds and from short-term loans from other firms.
small loan company.

Readers are Leaders, Leaders are Readers, non-readers follow!
Copyrighted Material