The financial system
According to the definition of the European Central Bank the financial system is comprised of three components:
- financial markets, such as the money markets and capital markets. They channel excess funds from lenders, i.e. businesses or individuals who want to invest their money, to borrowers, i.e. those who need capital.
- financial intermediaries, such as banks and insurance companies. They indirectly bring lenders and borrowers together – but borrowers can also obtain funds directly from financial markets by issuing securities, e.g. shares and bonds.
- financial market infrastructures permit the transfer of payments as well as the trading, clearing and settlement of securities transactions.