Depository Institutions are those financial institutions which directly accept deposits from depositors and lend to the borrowers. These institutions play the most important role in the development of the financial markets and in channelizing the savings to the borrowers in the economy. Depository institutions mainly include:
Commercial Banks: These are the depository institutions which are in the business of taking deposits from different entities and retail customers and providing loan to different borrowers (persons as well as businesses). They also provide a range of products and services for individuals as well as businesses to attract more customers. Retail banks are perfect example for the same.
Savings and Loan Associations: These institutions provide savings account facilities to the customers and also provide different lending services like mortgage lending. Many of them provide a range of services similar to a commercial bank to attract more customers. Housing finance company is a perfect example of the same.
Credit Unions: These are not-for-profit financial cooperatives that offer personal loans and other consumer banking services mainly to the needy and poor persons. Different cooperatives and credit unions are established by the Government to provide credit at much cheaper rate to the farmers.
Commercial banks, savings and loan associations and credit unions together hold a large share of the money stock of a country in the form of various types of deposits. They also lend these funds directly to individuals and businesses for different purposes and also lend them indirectly through investment in financial instruments.