Money-creating financial institutions are financial institutions that compare a large part of the supply and demand for funds and create purchasing power. Central banks and deposit banks and participation banks are money-creating financial institutions. These institutions also increase the investible funds in the economy by creating dematerialised money. Some of the actual purchasing power is created by the printing presses of the state mint and some by the entries in the books of deposit banks. When the Central Bank issues banknotes into circulation, part of the new purchasing power remains in the effective money circulation circuit, and part is deposited in banks as deposits. Deposit banks use the liquidity inflows from the effective money circulation circuit and from transactions at the central bank to create new purchasing power. As a result, money-creating financial institutions are financial institutions that compare a large part of the supply and demand for funds and create purchasing power. These institutions will be briefly analysed below.
Central Banks
Central banks emerged as a result of the social and economic development in the society after the establishment of commercial banks. Central banks, which have the authority to print money, are financial monetary institutions that determine and implement monetary, credit and foreign exchange policies. Central banks are also the head of the national banking system and a part of the international financial system as the last lender, meeting the liquidity requirements of banks.
Commercial Banks
Commercial banks, the first emerging type of banking, are institutions that accept deposits and grant loans. They are sometimes also called deposit banks. They are seen as money market institutions since they collect short-term deposits (maximum 1 year) and extend short-term loans (business loans). Fulfilling the two important functions of borrowing and lending, commercial banks constitute a significant weight of the banking system in all countries.
Participation Banks (Islamic Banks)
Participation banks, generally known as participation banks, are an alternative for the utilisation of the savings of individuals who accept interest as haram due to their religious beliefs. These banks are also called ‘interest-free banks, Islamic banks’. The fund collection and utilisation methods of these interest-free banks are different from others. These banks collect funds in three types of accounts and utilise these funds with different financing methods. These are Current Accounts, Savings Accounts and Investment Accounts.
Non-money creating financial institutions are institutions that lend the funds they collect without creating purchasing power themselves. Investment and development banks, insurance institutions, investment trusts and mutual funds, factoring companies, financial leasing companies, financing companies, asset management companies, venture capital companies and brokerage houses are such financial institutions. Brief definitions of these institutions will now be given.
Investment Banks
Investment banks are financial institutions that act as intermediaries between organisations that aim to provide long-term funds by issuing financial instruments and individuals/institutions with excess funds. It is controversial whether these institutions operating in the capital market are banks or not.
Development Banks
These banks, whose aim is to provide medium and long-term loans, are financial institutions established after World War II to support the development efforts of underdeveloped countries, to assist both domestic and foreign organisations in technology and capital transfers from foreign countries, especially developed countries, and to ensure the development of capital markets.
Insurance Institutions
Insurance institutions are institutions that operate in order to meet or reduce the losses that may occur in the future as income interruption or lack of income in monetary terms. They can collect short and long term funds according to the insurance branch. In life insurance, funds are collected and managed on a long-term basis.
Intermediary Institutions
Brokerage houses are institutions that act as intermediaries in both primary and secondary markets. While these institutions intermediate the issuance and sale of financial instruments through public offering in the primary market, they intermediate the purchase/sale in the secondary market.
Stock Exchanges
Stock Exchanges can be defined as an organised, centralised marketplace where listed financial instruments (stocks, corporate bonds, government bonds and treasury bills, forward contracts and options, etc.) are traded. Stocks are traded intensively on these exchanges. In recent years, futures and options exchanges have also become widespread.
Factoring Companies
Factoring/forfaiting companies are financing companies that enable receivables to be converted into cash before maturity. These companies undertake the commercial risk, collect receivables, keep the relevant accounting records, collect information about the capacity of the debtor and provide services such as purchasing receivables in cash when necessary.
Financial Leasing Companies
Financial leasing is a method that gives companies the option to lease an asset instead of purchasing it. Leasing companies are institutions specialised in financial leasing. In other words, they are the companies that leave the right of use of a property owned by them to the leaseholder in return for a certain lease payment.
Financing Company
These companies are institutions established to lend money to finance the purchase of goods and services. These companies can lend to households as well as to the business community.
Asset Management Company
These companies operate for the purpose of acquiring, collecting, restructuring and selling the receivables and assets of financial institutions.
Investment Trusts
Organisations that operate a portfolio of securities or real estate in their own name and sell their own shares to the participants.
