Miss Smith 7th Grade Civics *pgs. 511-516 Banks and Banking Miss Smith 7th Grade Civics *pgs. 511-516

The Origins of Banking Collateral- property used to guarantee repayment of a loan What events led gold-smiths to provide money-lending services? Townspeople brought money to goldsmiths to keep in their safes. Goldsmiths began charging a small fee for this money-keeping service. Eventually goldsmiths began to provide money-lending services as well How did early borrowers guarantee their loans? By promising to give up their property to the money lender if the loans were not repaid on time

Types of Bank Accounts Money in a checking account is called a demand deposit The bank must give you your money when you request/demand it Automated teller machines (ATMs) allow you to withdraw money at any time of day

Types of Bank Accounts Money deposited in a savings account earns interest Certificates of deposits (CDs)- longer term savings accounts Money market accounts- need to maintain a minimum balance Earns a higher interest rate Negotiable order withdrawal (NOW)- you can write checks and receive interest on the money in the account What choices do you have when choosing an account in which to deposit your money? A checking account, savings account, certificate of deposit (CD), money market, NOW

Types of Banks Commercial Banks Offers a full range of services Checking, savings, and NOW accounts, loans Insured by the Federal Deposit Insurance Corporation (FDIC) Will refund depositors if banks are unable to give them their money

Types of Banks Savings and Loans Associations (S&Ls) Banks begun in the mid-1800s to help people purchase homes Now offers similar services as commercial banks

Types of Banks Credit Unions Banks established, owned, and operated by people who work for a single company or belong to a single organization Deposits are also shares in the credit union Insured by the National Credit Union Association (NCUA) How are the different types of banks similar? They all offer places for people to deposit their money and are insured in some way What factors would you consider when choosing a bank to deposit your money in? Indicate how risks and choice of accounts would influence them, note importance of making sure the FDIC insured it

The Federal Reserve System (The Fed) System established by Congress in 1913 to handle the banking needs of the federal government and provide services to its member banks while regulating the U.S. banking system In the past, what might happen to a bank as a result of a rumor that it was “shaky”? Depositors might rush to the bank to withdraw all of their money in case the bank failed; too many withdrawals might leave the bank without money, causing it to fail and other depositors who had not withdrawn their funds to lose money

Federal Reserve Banks 12 districts in the U.S. with a Federal Reserve bank in each one Act as bankers for the federal gov. and other banks Two main purposes 1) Handle the sale of gov. issued bonds 2) Control the banking system Discount rate- rate of interest charged to member banks by the Federal Reserve Influences money available for loan at other banks What is the “discount rate”? How does it affect member banks of the Federal Reserve? The rate of interest charged to member banks by the Federal Reserve; It influences the interest rates these banks charge their customers

The Board of Governors 7 members Appointed by the president Serves one 14yr term Controls the circulation of currency What would cause the Fed to take money out of circulation? If the supply of money grew faster than the supply of goods Controls how much money is in circulation, can increase the money flow to stimulate the economy or restrict the money flow to slow economic growth

Discounting- deducting the interest on a loan in advance Getting a Bank Loan Discounting- deducting the interest on a loan in advance How does discounting affect the amount of money you receive when you obtain a loan? It reduces the amount of the loan by deducting the interest on the loan in advance List the steps you would take if you were applying for a business loan. First, you would meet with a loan officer and bring in business records and projections to show you have been making a profit and how your business would improve with the loan; if they approve the loan, you would receive the money, after discounting