15.3 U.S. Financial Institutions
- What are the key financial institutions, and what role do they play in the process of financial intermediation?
The well-developed financial system in the United States supports our high standard of living. The system allows those who wish to borrow money to do so with relative ease. It also gives savers a variety of ways to earn interest on their savings. For example, a small business wants to build a new facility in Atlanta. They would like to take out a loan from a financial institution to finance the new facility. The financial institution also has customers in San Diego with savings accounts. The institution can use the savings funds to give the loan to the business in Atlanta. The interest paid on the loan covers the cost to the bank for providing the funding and also allows the bank to give interest to the customers with savings accounts and for the bank to make a profit. The transfer of funds from savers to investors enables businesses to expand and the economy to grow.
Households are important participants in the U.S. financial system. Although many households borrow money to finance purchases, they supply funds to the financial system through their purchases and savings. Overall, businesses and governments are users of funds. They borrow more money than they save.
Sometimes those who have funds deal directly with those who want them. A family member may have the ability to lend money to another family member to purchase a house. Most often, financial institutions act as intermediaries—or go-betweens—between the suppliers and demanders of funds. The institutions accept savers’ deposits and invest them in financial products (such as loans) that are expected to produce a return. This process, called financial intermediation, is shown in Exhibit 15.5. Households are shown as suppliers of funds, and businesses and governments are shown as demanders. However, a single household, business, or government can be either a supplier or a demander, depending on the circumstances.
Financial institutions are the heart of the financial system. They are convenient vehicles for financial intermediation. They can be divided into two broad groups: depository institutions (those that accept deposits) and nondepository institutions (those that do not accept deposits).
Depository Financial Institutions
Not all depository financial institutions are alike. Most people call the place where they save their money a “bank.” Some of those places are indeed banks, but other depository institutions include thrift institutions and credit unions.
Commercial Banks
A commercial bank is a profit-oriented financial institution that accepts deposits, makes business and consumer loans, invests in government and corporate securities, and provides other financial services. Commercial banks vary greatly in size, from the “money center” banks located in the nation’s financial centers to smaller regional and local community banks. As a result of consolidations, small banks are decreasing in number. There are approximately 3,900 commercial banks in the United States, accounting for $24.5 trillion in assets.10 Banks hold a variety of assets, as shown in the diagram in Exhibit 15.6.
Table 15.4 lists the top 10 insured U.S.-chartered commercial banks, based on their consolidated assets.
Customers’ deposits are a commercial bank’s major source of funds, the main use for which is loans. The difference between the interest the bank earns on loans and the interest it pays on deposits, plus fees it earns from other financial services, pays the bank’s costs and provides a profit.
Commercial banks are corporations owned and operated by individuals or other corporations. They can be either national or state banks, and to do business, they must get a bank charter—an operating license—from a state or federal government. National banks are chartered by the Comptroller of the Currency, who is part of the U.S. Treasury Department. These banks must belong to the Federal Reserve System and must carry insurance on their deposits from the Federal Deposit Insurance Corporation. State banks are chartered by the state in which they are based. Generally, state banks are smaller than national banks, are less closely regulated than national banks, and are not required to belong to the Federal Reserve System.
Thrift Institutions
A thrift institution is a depository institution formed specifically to encourage household saving and to make home mortgage loans. Thrift institutions include savings and loan associations (S&Ls) and savings banks. S&Ls keep large percentages of their assets in home mortgages. Compared with S&Ls, savings banks focus less on mortgage loans and more on stock and bond investments. Thrifts are declining in number. At their peak in the late 1960s, there were more than 4,800. But a combination of factors, including sharp increases in interest rates in the late 1970s and increased loan defaults during the recession of the early 1980s, has reduced their ranks significantly. In 2020, due to acquisitions by or conversions to commercial banks or other savings banks, the number of thrifts had fallen to just over 600.11
| Top Ten Insured U.S.-Chartered Commercial Banks, Based on Total Assets, 2026 | |
|---|---|
| Bank | Assets |
| JPMorgan Chase Bank | $3,813,431,000 |
| Bank of America | $2,651,090,000 |
| Citibank | $1,844,189,000 |
| Wells Fargo Bank | $1,767,105,000 |
| U.S. Bank | $679,293,260 |
| Capital One | $652,138,082 |
| Goldman Sachs Bank | $644,020,000 |
| PNC Bank | $563,953,196 |
| Truist Bank | $535,540,000 |
| The Bank of New York Mellon | $366,502,000 |
Customer Satisfaction and Quality
Rating Banks: Mobile and Branch Banking a Must
Which banks provide the best customer satisfaction? J.D. Power (JDP), based in Costa Mesa, California, ranked nine national banks in the United States based on responses from more than 11,500 retail banking customers. In the research company's 2025 study, top performers received high ratings in trust, people, account offerings, allowing customers to bank how and when they want, saving time and money, digital channels, and resolving problems or complaints.
While specific banks took the top spots in various areas of the country, the overall customer sentiment in the JDP survey was clear: consumers wants banks that offer a digital experience and, as needed, personal interaction at a local branch. Findings also suggest that banks that provide a user-friendly digital experience will have higher customer satisfaction. This is especially important as customers utilize the full range of banking services such as mortgages and wealth management products. Other key survey findings include:
- Overall satisfaction increased 8 points over 2024's score
- Credit unions scored on average 74 points higher on satisfaction than banks
- Customers better understand the fees assessed, with one-third of credit union customers under 40 years of age indicating they are going to close their accounts because of fees
- Customers indicated more confidence in banks supporting them during hard times
- Fraud, debit cards, and interest earned on deposits were noted as areas of improvement.
Assessing customer satisfaction is also the goal of the American Customer Satisfaction Index (ACSI), which granted Bank of America the top spot in the national bank category in its 2025 survey, with a 1 percent decline in its overall score. Other top super regional banks in the ACSI study include Regions Bank, TD Bank, PNC Bank, and Capital One. Overall, national banks' customer service experience declined 1 percent from ACSI’s previous survey.
Sources: "U.S. National Banking Satisfaction Study," https://www.jdpower.com, accessed February 16, 2026; Matthew Goldberg, "J.D. Power Study: Customer Satisfaction Increasing at Banks but More So at Credit Unions," Bankrate, https://www.bankrate.com, April 28, 2025; "Keep Pace with Digitally Engaged Customers through Meaningful Metrics," https://theacsi.org, accessed February 16, 2026.
- What can banks and financial institutions do to retain their customers and make them feel valued?
- Is there a cost involved in not making customer service a priority? Explain your answer.
Credit Unions
A credit union is a not-for-profit, member-owned financial cooperative. Credit union members typically have something in common: they may, for example, work for the same employer, belong to the same union or professional group, or attend the same church or school. The credit union pools their assets, or savings, in order to make loans and offer other services to members. The not-for-profit status of credit unions makes them tax-exempt, so they can pay good interest rates on deposits and offer loans at favorable interest rates. Like banks, credit unions can have either a state or federal charter.
The approximately 4,300 credit unions in the United States have more than 143 million members and over $2.3 trillion in assets. The five largest credit unions in the United States are shown in Table 15.5. Although the U.S. credit union system remained strong during the 2007–2009 financial crisis, consumer-owned credit unions in several regions weakened as a result of home foreclosures, business failures, and unemployment rates. Today, the credit union system demonstrates resilience because of its member-oriented structure and greater stability with lower risk.12
Services Offered
Commercial banks, thrift institutions, and credit unions offer a wide range of financial services for businesses and consumers. Typical services offered by depository financial institutions are listed in Table 15.6. Some financial institutions specialize in providing financial services to a particular type of customer, such as consumer banking services or business banking services.
Managing Change
Banks Take on P2P Payments
Person-to-person (P2P) payment systems are big business, and U.S. banks are now working together to compete in this billion-dollar industry. P2P transfers made through apps such as Venmo, PayPal, Cash App, and others globally accounted for nearly $6 billion in 2023 with expected growth to over $30 billion by 2032.
The simplicity of P2P apps has made them a part of everyday life for millions, especially millennials and young adults who use their smartphones for many daily activities. Venmo, for example, requires a phone number and a bank account or debit card. You must also be at least 18 years of age and be located in the United States. Social media sites also encourage their members to transfer money via mobile apps, such as Google Wallet and Facebook Messenger.
Banks have been successful allowing their own customers to transfer money via apps; however, P2P transfers have been limited to other customers of the same bank—until now. More than 1,600 financial institutions utilize Zelle, which can be used to transfer funds to customers across these banking institutions. Over 80 percent of people in the United States can connect to Zelle via their bank's app.
A downside of using Venmo is that it may take a day or two for money to arrive in a recipient’s account because the money flows through an intermediary; however, for a fee, you can get the funds instantly. With Zelle, for enrolled users, the transfer of money between two accounts will occur within minutes. Typically, customers using Zelle through their banks are not charged a fee to accept or send money.
Is a cashless society imminent now that major banks have gotten on board with P2P payments? Probably not, but the Consumer Financial Protection Bureau has put rules in place to protect customers. As of the end of 2024, P2P systems will be supervised in the same way that banks and credit unions are. This oversight includes document reviews and employee interviews to make sure they are maintaining consumer privacy and protecting against fraudulent activities.
- Does working together on a P2P system help banks stay competitive? Explain your reasoning.
- Do you think P2P payment systems will eventually eliminate the use of cash in our society? Why or why not?
Sources: "Sending & Requesting Money," https://help.venmo.com, accessed February 16, 2026; "Peer to Peer Lending Market Size, Share & Segmentation By Type, By Loan Type, By Purpose Type, By End-User, By Region and Global Forecast 2024-2032," S&S Insider, https://www.snsinsider.com, November 2024, p. 125; Adriana Nunez, "Zelle Carries Momentum Thanks to Network and Capability Expansions," EMarketer, https://www.emarketer.com, September 9, 2022; "Zelle® Help Center," https://www.zelle.com, accessed February 16, 2026; Diccon Hyatt, "CFPB Will Treat Payment Apps Like Banks," Investopedia, https://www.investopedia.com, November 21, 2024.
| Five Largest U.S. Credit Unions |
|---|
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Nondepository Financial Institutions
Some financial institutions provide certain banking services but do not accept deposits. These nondepository financial institutions include insurance companies, pension funds, brokerage firms, and finance companies. They serve both individuals and businesses.
Insurance Companies
Insurance companies are major suppliers of funds. Policyholders make payments (called premiums) to buy financial protection from the insurance company. Insurance companies invest the premiums in stocks, bonds, real estate, business loans, and real estate loans for large projects.
| Services Offered by Depository Financial Institutions | |
|---|---|
| Service | Description |
| Savings accounts | Deposits gain interest, and it is expected that the money will remain in the account for some time |
| Checking accounts | Transactional accounts where depositors can deposit or withdraw funds at any time up to the amount in the account |
| Money market deposit accounts | Accounts that have features of both a savings and checking account with higher interest rates based on market rates |
| Certificates of deposit (CD) | Similar to savings accounts, but pay a fixed interest rate over a certain time period during which you cannot withdraw the funds |
| Consumer loans | Loans to individuals to finance purchases such as homes or cars |
| Business loans | Loans to businesses or organizations to finance their operations |
| Electronic funds transfer | Use of computers and mobile devices to conduct financial transactions |
| Automated teller machine (ATM) | Self-service kiosk where customers can conduct a variety of transactions including withdraws and deposits |
| Debit cards | Electronic transfer of funds from a checking or savings account to be used for purchases |
| Online banking | Allows customers to conduct financial transactions online or via a mobile app |
| Mobile apps | Technology that allows consumers to download programs to mobile devices that enable them to take care of banking, financial, and other transactions |
| Direct deposit of paychecks | Enabled through employers and payroll service vendors; allows financial institutions to accept direct deposits of payroll checks to consumers’ checking and/or savings accounts on a regular basis |
Pension Funds
Corporations, unions, and governments set aside large pools of money for later use in paying retirement benefits to their employees or members. These pension funds are managed by the employers or unions themselves or by outside managers, such as life insurance firms, commercial banks, and private investment firms. Pension plan members receive a specified monthly payment when they reach a given age. After setting aside enough money to pay near-term benefits, pension funds invest the rest in business loans, stocks, bonds, or real estate. They often invest large sums in the stock of the employer. U.S. pension fund assets total nearly $30 trillion.13
Brokerage Firms
A brokerage firm buys and sells securities (stocks and bonds) for its clients and gives them related advice. Many brokerage firms offer some banking services. They may offer clients a combined checking and savings account with a high interest rate and also make loans, backed by securities, to them.
Finance Companies
A finance company makes short-term loans for which the borrower puts up tangible assets (such as an automobile, inventory, machinery, or property) as security. Finance companies often make loans to individuals or businesses that cannot get credit elsewhere. Promising new businesses with no track record and firms that can’t get more credit from a bank often obtain loans from commercial finance companies. Consumer finance companies make loans to individuals, often to cover the lease or purchase of large consumer goods such as automobiles or major household appliances. To compensate for the extra risk, finance companies usually charge higher interest rates than banks.
Concept Check
- What is the financial intermediation process?
- Differentiate between the three types of depository financial institutions and the services they offer.
- What are the four main types of nondepository financial institutions?