financial system

a network of financial institutions (COMMERCIAL BANKS, BUILDING SOCIETIES, etc.) and markets (MONEY MARKET, STOCK MARKET), dealing in a variety of financial instruments BANK DEPOSITS, STOCKS and SHARES, etc.), which are engaged in money transmission activities and the provision of LOAN and CREDIT facilities. The financial institutions and markets occupy a key position in the economy as intermediaries in channelling savings and other funds to borrowers and investors. In doing this one of their main roles is to reconcile the different requirements of savers and borrowers, thereby facilitating a higher level of saving and investment in the economy than would otherwise be the case. Depositors with financial institutions are seeking a relatively risk-free repository for their monies, combining ready access to their money with a longer term investment return, which provides for current income and/or capital appreciation. Borrowers, in general, require access to funds of varying amounts to finance short-, medium- and long-term debt and capital investment, often, as is particularly the case with business investments, under conditions of substantial risk. The financial institutions help to reconcile these different requirements in three main ways:

by combining together the deposits and savings of many individuals, thus making it possible to make single large-scale loans;
by pooling the resources of many depositors and savers to provide both for an individual to withdraw his funds at short notice while maintaining, in the round, a substantially large and stable financial base to underpin long-term lending;
by holding a diversified portfolio of assets and lending for a variety of purposes so as to provide for various risk-return combinations.

In the UK the financial system is regulated by the BANK OF ENGLAND in combination with the FINANCIAL SERVICES AUTHORITY. See FINANCIAL SERVICES ACT 1986, BANKING SYSTEM, CLEARING HOUSE SYSTEM, BUILDING SOCIETIES ACT, 1986.

financial system

a network of financial institutions (BANKS, COMMERCIAL BANKS, BUILDING SOCIETIES, etc.) and markets (MONEY MARKET, STOCK EXCHANGE) dealing in a variety of financial instruments (BANK DEPOSITS, TREASURY BILLS, STOCKS and SHARES, etc.) that are engaged in money transmission and the lending and borrowing of funds.

The financial institutions and markets occupy a key position in the economy as intermediaries in channelling SAVINGS and other funds to BORROWERS. In so doing, one of their principal tasks is to reconcile the different requirements of savers and borrowers, thereby facilitating a higher level of saving and INVESTMENT than would otherwise be the case. Savers, in general, are looking for a safe and relatively risk-free repository for their monies that combines some degree of liquidity (i.e. ready access to their money) with a longer-term investment return that protects the real value of their wealth as well as providing current income. Borrowers, in general, require access to funds of varying amounts to finance current, medium-term and long-term financial and capital commitments, often, as is especially the case with business investments, under conditions of unavoidable uncertainty and high degrees of risk. The financial institutions help to reconcile these different requirements in the following three main ways:

by pooling together the savings of a large number of individuals, so making it possible, in turn, to make single loans running into millions of pounds;
by holding a diversified portfolio of assets and lending for a variety of purposes to gain economies of scale by spreading their risks while still keeping profitability high; (c) by combining the resources of a large number of savers to provide both for individuals to remove their funds at short notice and for their own deposits to remain stable as a base for long-term lending.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

Mentioned in

References in periodicals archive

The Indian central bank has said that the Indian financial system is stable.

Indian central bank says nation's financial systems are stable

Term deposit rates ease across the board !-- -- Lawrence Agcaoili (The Philippine Star) - May 30, 2019 - 12:00am MANILA, Philippines The yield of term deposits eased across the board at Wednesday's auction as banks await the release of additional funds into the financial system from the reduction of the reserve requirement ratio (RRR) effective May 31.

Term deposit rates ease across the board

In analyzing the impact to the Philippines of a possible global growth slowdown, Diokno, who is also FSCC chair, said they are ready to "guard the financial system against brewing systemic risks that can have negative consequences on the real economy and on the public".

Gov't ready to intervene to ensure financial market health

THE Bangko Sentral ng Pilipinas (BSP) reported that the local financial system was in the pink of health toward the end of last year despite global volatility in financial sectors worldwide.

BSP: Banks performed well amid global volatility in 2018

Bank CEOs including JPMorgan's (JPM) Jamie Dimon, Citigroup's (C) Michael Corbat and Goldman Sachs' (GS) David Solomon plan to tell Congress that the financial system is less risky and more strictly supervised than a decade ago due to regulatory reforms established following the 2008 financial crisis, the Wall Street Journal's Andrew Ackerman and Lalita Clozel report, citing prepared testimony.

Bank chiefs tell Congress that financial system is much safer, WSJ reports

Thimmaraya and Venkateshwarlu explore the complex non-linear dynamics of financial system stress--financial crisis or extreme events--and the economic performance as a whole.

Dynamics of Financial Stress and Economic Performance: Insights and Analysis from the World Economy

Two weeks after tightening monetary policy in a bid to cap inflation, the central bank on Thursday announced a surprise 1-percentage point reduction in banks' statutory reserve requirements that will effectively release more money into the financial system.

Bank reserve requirement cut anew

Carney calls for regulation of cryptocurrency BANK of England Governor Mark Carney has launched a scathing attack on cryptocurrencies such as Bitcoin, and called for them to be held to the "same standards as the rest of the financial system".

Carney calls for regulation of cryptocurrency

Karachi: State Bank of Pakistan (SBP), being the central bank and banking supervisor, plays a pivotal role in ensuring stability of Pakistan's financial system. In pursuance of SBP Vision 2020, it is committed to strengthening its financial stability regime to identify and manage systemic risks arising from within and outside the country's financial system.

State Bank of Pakistan Launches Systemic Risk Survey (SRS)

KARACHI -- State Bank of Pakistan on Wednesday launched Systemic Risk Survey (SRS) to gauge the views of market participants and experts about various existing and emerging risks, that potentially undermine stability of the financial system.

State Bank launches systemic risk survey