economy. They accept deposits (loans by individuals or firms to banks) and make loans (sums of money lent by banks to individuals or firms): therefore, they borrow deposits from people who have saved and in turn make loans to others. In recent years, other financial intermediaries, such as mutual funds, pension funds, insurance companies and investment banks, have been growing at the expense of banks. Taxonomy of financial intermediaries We begin by looking at the USA, the largest economy and financial system in the world. Later we will turn to other countries. In the USA the three major groups of financial intermediaries are: depository institutions, contractual savings institutions and investment intermediaries (for an overview of financial intermediaries around the world refer to the next section). Depository institutions Depository institutions – intermediaries with a significant proportion of their funds derived from customer deposits – include: commercial banks, savings institutions and credit unions. Commercial banks
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