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Your money and the financial system Page 6 What is the financial system The financial system is central to the working of the economy and modern life. The financial system has many parts that allow money to flow around the economy. The bestknown are high-street banks, building societies and insurers. Others include pension funds, asset managers, investment banks, credit unions and hedge funds. All of these and more make up what we call the financial system. A healthy and stable financial system provides three key services to the economy: • it makes payments from one person or business to another; • it supplies finance to businesses and households; and • it allows us to insure against risk. INSURERS HIGH ST BANKS PENSION FUNDS PENSION FUNDS CREDIT UNIONS Payments worth £230bn every day HEDGE FUNDS
Page 7 Each day the financial system settles millions of transactions, including spending in the shops and online, payment of bills, wages, benefits and withdrawals from high-street cash machines. The total amount of money passing through UK payment systems is enormous, with a value of over £230 billion every single day. In a world without payment systems every transaction – even the purchase of a house – would have to be paid by handing over cash! Insurance companies allow people to insure against the risks they face in their businesses or daily lives. Many worthwhile opportunities would be overlooked without the protection of insurance, which allows businesses to expand with more confidence and the economy to grow. The financial system brings savers and investors together to put money to work. One person’s savings in a bank can become the investment in a business that will create new jobs, or a mortgage for house purchase. And savings can be invested in shares by pension funds to allow firms to grow. If a large bank or insurer gets into serious difficulties, problems can spread rapidly across the financial system. Before long, even healthy banks can be starved of cash and the whole financial system can get into trouble. BUILDING SOCIETIES Central banks and regulators work to keep the financial system stable. A stable financial system means households and businesses can have confidence their money is safe, insure against risk and rely on access to finance when they need it – in good times and in bad.
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Your money and the financial system Page 6<br />
What is the financial system<br />
The financial system is central to the working of<br />
the economy and modern life.<br />
The financial system has many<br />
parts that allow money to flow<br />
around the economy. The bestknown<br />
are high-street banks,<br />
building societies and insurers.<br />
Others include pension funds,<br />
asset managers, investment banks,<br />
credit unions and hedge funds.<br />
All of these and more make up<br />
what we call the financial system.<br />
A healthy and stable financial<br />
system provides three key<br />
services to the economy:<br />
• it makes payments from one<br />
person or business to another;<br />
• it supplies finance to businesses<br />
and households; and<br />
• it allows us to insure against risk.<br />
INSURERS<br />
HIGH ST<br />
BANKS<br />
PENSION<br />
FUNDS<br />
PENSION<br />
FUNDS<br />
CREDIT<br />
UNIONS<br />
Payments worth<br />
£230bn<br />
every day<br />
HEDGE<br />
FUNDS
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