The Public Nature of Financial Institutions

Financing takes two forms: direct financing - where the provider makes funds available to the recipient directly and indirect financing - where an institution existing between the two borrows funds from one and lends them to another. Securities companies are the main players in direct financing, while banks are the main players in indirect financing. In recent years, a new form of financing known as market-oriented indirect financing has come into being halfway between direct and indirect financing.

The functions that facilitate the flow of money between fund providers and recipients are known collectively as the "financial intermediary functions." Finance also fulfils a "settlement function." Settlement refers to the act of paying consideration for purchases of goods and services and usually takes the form of bank transfers, credit card payments, checks or bills. Since these settlements take place via accounts at banks and other entities, they are considered one of the functions offered by financial institutions.

Financial Intermediation Function

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Of the various financial institutions in existence, ordinary people are most familiar with banks, which provide the fund intermediation function and deposit services, and offer settlement functions. If a bank runs into business difficulties, the impact extends to corporate borrowers and other customers as well as depositors. Moreover, since transactions between banks involve enormous amounts of funds, the failure of a single bank may trigger a chain reaction in which several other banks also fail.

In order to protect depositors and maintain orderly credit conditions, bank managements are required to maintain a healthy financial base to a much greater extent than the managements of other companies.

Given the public nature of our operations, we shall facilitate finance and contribute to the healthy development of the global economy.