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Money and credit - Ivanov V.M.

22.3. Specialized non-bank financial institutions

In recent years, the importance of specialized non-banking credit and financial institutions, which play an important role in the accumulation and mobilization of money capital, has increased in the national markets for loan capital. These institutions include: insurance companies, pension funds, loan and savings associations, construction companies, investment and financial companies, charitable foundations, credit unions. These institutions have significantly squeezed banks in the accumulation of savings of the population and have become important suppliers of loan capital.

Three main reasons contributed to the influence of specialized non-bank financial institutions:

• growth of population incomes in developed countries;

• active development of the securities market;

• the provision by these institutions of special services that banks cannot provide.

In addition, a number of specialized non-banking institutions (insurance companies, pension funds), unlike banks, can accumulate cash savings for quite a long time and, therefore, make long-term investments.

The main forms of activity of these institutions in the market of loan capital are reduced to accumulating savings of the population, providing loans through bonded loans to corporations and the state, mobilizing capital through all types of shares, providing mortgage and consumer loans, as well as mutual assistance.

These institutions are in intense competition among themselves both for attracting cash savings and in the field of credit operations.

Insurance companies compete with pension funds for raising retirement savings and investing in stocks. Savings and loan associations are struggling with insurance companies in the field of mortgage loans and real estate investments, as well as in the field of investing in government securities. Financial companies compete with consumer insurance companies. Investment and insurance companies, pension funds compete among themselves for investments in shares.

In addition, all types of these institutions compete with commercial and savings banks to attract the savings of all segments of the population. It should be noted that competition between specialized non-banking institutions, and between them and banks has the so-called non-price nature. This is due primarily to the specifics of passive operations of each type of financial institutions. So, in banking there is an interest rate on deposits (loans) and loans granted, in insurance - the insurance rate, which determines the size of the insurance premium and insurance compensation; investment companies - the exchange rate difference of shares issued and acquired by them. Therefore, non-price competition is determined primarily by the incomparability of operations and their prices. Comparability is possible only when investing in homogeneous financially by nature objects. In this case, we can talk about the comparability of investments in government securities and certain types of shares, as well as in mortgage and consumer loans.

The creation and development of pension funds is a new phenomenon in the market of loan capital, securities and in the credit system as a whole.

Savings and loan associations are credit partnerships created to finance housing construction.

Financial companies - a special type of financial institutions that operate in the field of consumer credit. Financial companies are an important tool for pushing durable goods into the markets for large industrial corporations, especially in conditions of low demand and worsening economic conditions.

Credit unions are mainly intended for servicing individuals united by professional and religious grounds.

The development of charitable foundations is connected with a number of circumstances:

• charity has become part of entrepreneurship;

• with the desire of owners of large personal fortunes to avoid large taxes during inheritance and donation;

• with the practice of large owners to conceal their capital from income tax and inheritance tax.

Investment companies raise funds by issuing their own shares, which they then invest in the securities of industrial and other corporations. Thus, they finance various sectors of the economy.

A feature of the accumulation of capital of insurance companies is the receipt of insurance premiums from legal entities and individuals, the amount of which is calculated on the basis of insurance tariffs or rates, as well as investment income.

The monopoly stage of capitalism led to the emergence of new financial institutions, which began to develop rapidly after the crisis of 1929-1933. A more complete delineation of functions between various financial institutions within the credit system has occurred. Insurance companies, pension funds, investment companies, savings and loan associations and other specialized institutions have grown rapidly and have occupied the most important positions in the loan capital market. They became the main source of long-term capital in the money market, displacing commercial banks in this area.

However, a decrease in the share of commercial banks does not mean a decrease in their role in the economy. They continue to fulfill the most important functions of the credit system: settlement operations, deposit-check issuance, short- and medium-term financing, as well as a certain part of long-term financing.

Specialized non-bank financial institutions carry out their functions in the economy in three main areas:

• the provision of loan capital to industry and the state;

• accumulation of free cash capital and cash savings of the population;

• ownership of fictitious capital.

A wide network of specialized credit and financial institutions made it possible to collect free cash capital and savings and put them at the disposal of commercial and industrial corporations and the state. Thus, the development of the credit system was one of the most important prerequisites for ensuring a relatively high rate of capital accumulation, which contributed to the growth of production and the implementation of the scientific and technological revolution.