B ANKS AND O THER F INANCIAL I NSTITUTIONS Goals Explain the purpose of the Federal Reserve System. List the types of financial institutions. Discuss factors for selecting a financial institution

K EY T ERMS Federal Reserve System (Fed) commercial bank credit union Federal Deposit Insurance Corporation (FDIC) 2 Chapter 17

F OCUS ON R EAL L IFE – PG. 422 What do you know about banking and financial institutions?

T HE B ANKING S YSTEM Have you ever thought of a bank as a business? It is just like a store or factory. It sells services such as checking and payment accounts, savings accounts, loans, and investment. They are regulated more strictly than most other businesses. If a business fails, some people lose money. If a bank fails, thousands of people are affected.

T HE F EDERAL R ESERVE S YSTEM The Federal Reserve System(FED) is the bank for banks. The federal government set up the Federal Reserve System Supervise and regulate member banks and to help banks serve the public efficiently All national banks are required to join the Federal Reserve and state banks may join. Banks that join the system are known as member banks. U.S. is divided into 12 Federal Reserve districts. Pg Chapter 17

WTBS… Which Federal Reserve Regional Bank serves banks in our community?

F EDERAL R ESERVE A CTIVITIES Holding of reserves Banks cannot lend all of the money they receive from customers. Required to keep a part of the money deposited by customers on deposit with the Federal Reserve System. Fed hold these deposits in case the banks need additional funds to meet daily customer demand. Bank will lend only a certain percentage of deposited funds. The rest is reserved. For Example: If a customer deposits $1000 and the bank is required to hold 15% of all deposits. How much can the bank lend? $850.

F EDERAL R ESERVE A CTIVITIES Clearing checks for member banks. Clearing refers to the paying of checks among different banks in different locations. The Fed processes millions of checks each day to make sure that the correct amounts are added to and subtracted from appropriate accounts.

B ANKING AND THE E CONOMY Ways that individuals, businesses, and governments use banking services Borrow money to build roads Borrow money to buy seeds for crops Deposit cash from business operations Finance a college education Invest for retirement Obtain a mortgage Process credit cared transactions Save for a vacation. When you and other deposit money in a bank, you are helping to create jobs and economic growth that benefit your community and your society.

WTBS… How do you expect to use banks and other financial institutions to reach the goals you have set?

TYPES OF FINANCIAL INSTITUTIONS Commercial Banks Savings and Loan Associations Mutual Savings Banks Credit Unions Life Insurance Companies Investment Companies Consumer Finance Companies Mortgage Companies Check Cashing Outlets Pawnshops Deposit InstitutionsNon-Deposit Institutions

TYPES OF FINANCIAL INSTITUTIONS Deposit institutions – Accepts deposits from people and businesses and use them to finance their businesses. 1. Commercial banks 2. Savings and loan associations 3. Mutual savings banks 4. Credit unions 12 Chapter 17

D EPOSIT I NSTITUTIONS Chapter Commercial banks Most common way for a bank to be organized. Often called full service banks b/c they offer a wide range of financial services. Checking accounts, provide savings accounts, make loans to individuals and to businesses. Savings and loan associations Traditionally, they specialized in savings accounts and making loans for home mortgages. Today, they have become more like banks.

D EPOSIT I NSTITUTIONS Chapter Mutual savings banks Owned by and operated for the benefit of, its depositors. Profits are distributed in proportion to the amount of business each participant does with the company. It is organized mainly for savings and home loans. Located mainly in the northeastern U.S. Credit unions User-owned, not-for-profit People in the same company, government agency, labor union, or profession often form credit unions. Serve members only. Accept deposits and make loans for a variety of purposes. When people make deposits, they become members b/c deposits are partial ownership in the credit union. National Credit Union Administration (NCUA), a federal agency regulates these financial institutions.

TYPES OF FINANCIAL INSTITUTIONS Non-deposit financial institutions – Do not take or hold deposits. They earn their money selling specific services or policies. Life insurance companies Investment companies Consumer finance companies Mortgage companies Check-cashing outlets Pawnshops 15 Chapter 17

N ON - DEPOSIT F INANCIAL I NSTITUTIONS Life insurance companies Provides financial security for their dependents. Offer financial services such as investments. Investment companies Are chosen for long-term growth of their money. Consumer finance companies Specializes in making loans for long-lasting or durable goods, such as cars and refrigerators, and for financial emergencies. 16 Chapter 17

N ON - DEPOSIT F INANCIAL I NSTITUTIONS Mortgage companies Provide loans for buying a home or other real estate. Check-cashing outlets People who do not have bank accounts may use check-cashing outlets (CCO) to cash paychecks and to obtain other financial services. Such as: electronic tax filing, money orders, private postal boxes, utility bill payment, and the sale of bus and subway tokens. Some services provided at a CCO are more expensive than at other businesses. Pawnshops Make loans based on the value of some tangible object, such as jewelry or other valuable items. Commonly charge higher fees than other financial institutions and should usually be avoided. 17 Chapter 17

WTBS… How are non-deposit financial institutions different from deposit institutions?

SELECTING A FINANCIAL INSTITUTION 4 Basics services offered Savings accounts Checking and payment accounts Loans and other credit plans Other services, such as safe-deposit boxes 19 Chapter 17

SELECTING A FINANCIAL INSTITUTION Safety Federal Deposit Insurance Corporation (FDIC) It protects depositors’ money in case of the failure of a bank or financial institution that it regulates. Insures all accounts in the same name at each bank up to $100,000 Almost 99% of all banks are FDIC members. Convenience Close to where you live or work, convenient ATM locations, Internet banking Fees and charges Comparison shop for best fees on the services you need Restrictions 20