AWerner_Module04FinanceCompaniesVersusCommercialBanks_102917.docx

AWerner_Module04FinanceCompaniesVersusCommercialBanks_102917.docx

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Running head: FINANCE COMPANIES VERSUS COMMERCIAL BANKS 1 Finance Companies versus Commercial Banks Angela Werner Rasmussen College Author Note This paper is being submitted on October 29, 2017, for Thomas Rindahl’s FIN1202 Financial Markets and Institutions course.
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FINANCE COMPANIES VERSUS COMMERCIAL BANKS 2 Finance Companies versus Commercial Banks Savings institutions, credit unions, and finance companies are all examples of lending institutions. These lending institutions differ from commercial banks in their sizes and structures, services provided, and the customers they serve. There are three major types of finance companies which I will be discussing throughout this paper. While providing information on these types of finance companies within this document, I will also be identifying their offered advantages and explain why they are less regulated than commercial banks. “Commercial banks, which are also referred to as depository institutions, given the proportion of funds that come from customer deposits, are the largest sector of financial institutions in terms of dollar value of assets. Commercial banks provide loans to, and accept deposits from, nonfinancial firms and individuals” (Rasmussen College, 2017). “Loans are their major assets and deposits are their major liabilities. Commercial banks are essential to the efficient functioning of the financial markets – they play a primary role in monetary policy as a result of the deposits they carry, their efficient payment services directly benefit the economy, and maturity intermediation services enable various types of contracts to be created concurrently” (Rasmussen College, 2017). “The three major types of finance companies are (1) sales finance institutions, (2) personal credit institutions, and (3) business credit institutions. Sales finance institutions (e.g., Ford Motor Credit and Sears Roebuck Acceptance Corp.) specialize in making loans to customers of a specific retailer or manufacturer” (Saunders & Cornett, 2017 pg. 458). “Because
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