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Understanding Financial Crises Through Banking System
The most basic definition of a financial company would be one that makes commercial loans. It can also provide loans to both corporations and individuals. A financial company can be a bank, building society, credit union or any other financial organization. In the United Kingdom there are currently eight such companies which have been given government funding in the last few years.

These include Northern Rock, First-e and Trinity. There are a number of different kinds of financing which can be provided by a financial company. It depends upon the amount of risk that has been posed by the company for the loan application. For instance, if the loan amount has not been repaid for a period of time and then the borrower defaults again, then the company will be required to sell off its assets to raise the necessary capital to resume repayment of the loan. Such sale of assets is known as recapitalization.

There are many different kinds of financial companies, which are available for such purposes. Investing of these banks and building societies are known by us simply as investment banks and others by the name of retail banks. Most people are familiar with the term of commercial mortgage banking and also wholesale mortgage banking. However, there are other kinds of banks that perform entirely different kinds of financial functions. One such example is investment banks or insurance companies.

There are a number of ways in which these financial companies make loans. Firstly, they take a risk in the bonds or shares of the borrower which represents the value of their future income streams. If the borrower defaults on his repayments then the credit union or the bank loses its share of the money invested. The money thus invested is known as short-term loans or debentures. This type of funding is normally very attractive as the rate of interest on these types of loans is generally very low or sometimes even zero-interest.

Another way in which a financial company makes loans is through the sale of its portfolios of variable interests. A portfolio is made up of many different variable interests such as commercial and government bonds. Such financial loans may either be taken from the short-term loans function or the investment banking function.

Nonbank financial companies can provide secured and unsecured loans. The secured kind of loans are usually taken from the banks and the investment banks. They are referred to as commercial loans and they are generally referred to as corporate bonds. On the other hand, the unsecured kind of such loans can be taken from the foreign nonbank financial companies or the U.S. nonbank financial companies. These companies do not require the collateral for the loans, which means that the borrowers will not have to fear about losing their property if they fail to repay the loan.

Other ways in which the non-financial companies make money are through the sale of its portfolios of fixed interest securities and its credit cards. The fixed interest securities refers to those securities which come with terms of repayment over a definite period of time and which are offered by the financial company on payment of regular principal and interest. These securities can also be called primary instruments of debt management. However, the sale of its credit cards has become a very popular business. The credit cards are issued by the companies on behalf of the borrowers and the amount is repaid according to the terms and conditions agreed upon between the borrower and the credit card issuer.

Many people feel that the banks are the only institutions that can lend money. However, there are many other financial institutions as well. The Commercial Banking System is one such example. Other such institutions include Savings and Loan Corporation, Federal Reserve Bank, Office of Thrift Supervision and the Federal Reserve Banks. In the United States, these banks constitute the major portion of the financial system and play an important role in the financial crisis faced by the economy.
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