Private financial institutions, such as banks and hedge funds, are owned by shareholders and operate with a focus on generating profits for them. Public financial institutions, owned by the government, have a public service mission. Regulations and controls apply to both types of institutions.
Private financial institutions are entities such as banks and hedge funds that are wholly owned by shareholders, without government involvement. These entities are still subject to government regulation and supervision, but they operate with different end missions in mind. Its primary responsibility is to its shareholders, unlike public institutions, which have a public service mission, often development-oriented. Public financial institutions are owned in whole or in part by the government and may include multiple government investors in the case of organizations such as the World Bank.
The positions held by shareholders may vary. In a credit union, each customer is also a shareholder, with the number of shares determined by the size of the deposit. The credit union is required to generate returns for its customers, who also have the opportunity to vote on credit union officers and policies. This template may also include a link to another entity, such as a corporation creating a credit union for its employees.
Other private financial institutions are owned by shareholders who may or may not be depositary members, and customers with deposited funds do not necessarily own shares. These organizations invest the funds to provide shareholder returns and may offer their clients benefits such as interest on savings accounts. These private financial institutions may also engage in activities such as investing shareholder funds in stocks, bonds, and other financial instruments to generate profit.
Such institutions can offer a variety of benefits to their shareholders. In some cases, the number of shareholders in private financial institutions may be limited; a single family, for example, might have a majority stake in a bank, and the sale of shares might be restricted. Others have shares traded on the open market, and can have a large number of shareholders thanks to stock dividends and the release of new issues. Shareholders may receive dividend payments on their shares and have the opportunity to vote in elections to determine the shape of the institution’s policies.
Numerous regulations cover operations in private financial institutions. These include privacy requirements to protect the security of member information, as well as legal requirements related to reserve funds and other matters. These organizations are not accountable to the public in the way that public institutions are, but are subject to controls to limit the possibility of financial panics and crises that could create a domino effect. In contrast, a public financial institution such as a development agency needs to provide funds for public works, publish information about its activities, and work with the public good in mind.
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