Chapter 21: Learning Objectives Other Financial Institutions: What Are They? Insurance Industry: General Characteristics Mutual Funds & Pension Funds: General Overview Government Programs & Incentives
Other Financial Institutions Financial and Leasing Corporations Investment Dealers Government Financial Institutions Insurance Companies Mutual Funds Pension Funds
Investment Dealers Underwrite securities Also act as primary market dealers Since the early 1990s have been largely bought out by Chartered banks Serious regulatory issues have affected the industry in the 1990s
Government Financial Institutions In theory, fill in gaps left behind by the private market either because of risk or low profitability Examples include: CMHC, FBDB, EDC, FCC
Insurance Companies Most are federally regulated Separate Acts regulate domestic vs. foreign based companies There are 2 types of cos.: Joint-stock (shareholder owned) & mutual cos (policy holder owned). Assets must be sufficient to cover liabilities segregated fund component acts like an intermediary by offering RRIFs They have their own “protection” fund that acts like deposit insurance Demutualization is the dominant current trend
Investment Funds & Cos Mutual Funds Closed-end (fixed no. of shares) Open-end (no share limit) usually specialize (e.g., bonds, mortgages, etc.) Pension funds Who operates them? Public vs. Private How are finds built up? Contributory vs. compulsory Who manages them? Trusteeship How are benefits paid? Defined (size & fund return) vs flat benefit (tenure)
Summary There exist a large variety of public and private institutions which function as intermediaries but are not necessarily deposit-taking institutions Public institutions attempt to fill a perceived void left by the private market either because risks are too high or anticipated profits too low Other financial institutions include leasing cos., investment dealers, insurance companies, government financial institutions, mutual and pension funds