CHAPTER 25 FINANICAL INSTITUTIONS AND BANKING SERVICES. Mr. Calkins CHAPTER 25 FINANICAL INSTITUTIONS AND BANKING SERVICES Mr. Calkins Spring 2008

THE BANKING SYSTEM & FINANICAL SERVICES

THE BANKING SYSTEM & FINANICAL SERVICES The Business of Banking Most people don’t think of banking as a business. Yet a bank is a business just like stores and factories. For their services banks earn most of their revenue by charging interest for loans. However just because a bank is a business not just anyone can start one!

THE BANKING SYSTEM & FINANICAL SERVICES BANKS & OTHER DEPOSIT-TYPE INSTITUIONS COMMERICAL BANK SAVINGS & LOAN MUTUAL SAVINGS CREDIT UNIONS

THE BANKING SYSTEM & FINANICAL SERVICES COMMERCIAL BANK Commercial Banks are often called full-service banks because they offer a wide range of financial services such as: Savings Accounts Checking Accounts Loans (Individuals) Loans (Businesses)

THE BANKING SYSTEM & FINANICAL SERVICES SAVINGS & LOANS Savings & Loan Association Specialize in “Savings Accounts” Home Mortgage In recent years these organizations have expanded out in to the other aspects of banking as well.

THE BANKING SYSTEM & FINANICAL SERVICES MUTUAL SAVINGS BANKS A mutual savings bank provides a variety of services. It is however organized almost exclusively for savings purposes. This type of financial institution is owned by the depositors. All profits of the business go back to the depositors. Most of these types of banks are located in the Northeast United States.

THE BANKING SYSTEM & FINANICAL SERVICES CREDIT UNIONS This is a “user” owned and “non-profit “financial institution. These are normally formed for people who work in the same company. Such as government agency, unions, school districts etc.

THE BANKING SYSTEM & FINANICAL SERVICES CREDIT UNIONS OFFER THE FOLLOWING” SPECIALIZED CHECKING ACCOUNTS CREDIT CARDS MORTGAGES HOME EQUITY LOANS SAFE=DEPOSIT BOXES INVESTMENT SERVICES ELECTRONIC BANKING SERVICES PROVIDE LOANS TO SMALL BUSINESSES

THE BANKING SYSTEM & FINANICAL SERVICES NON—DEPOSIT -TYPE INSTITUIONS LIFE INSURANCE COMPANIES INVESTMENT COMPANIES CONSUMER FINANCE COMPANIES MORTGAGE COMPANIES CHECK-CASHING OUTLETS PAWNSHOPS

THE BANKING SYSTEM & FINANICAL SERVICES LIFE INSURANCE COMPANIES People buy life insurance to provide $$$security for their loved ones. Many life insurance companies also offer other financial services.

THE BANKING SYSTEM & FINANICAL SERVICES INVESTMENT COMPANIES Investment companies allow people to choose investment opportunities for long-term growth of their money.

THE BANKING SYSTEM & FINANICAL SERVICES CONSUMER FINANCE COMPANIES These companies specialize in making loans for long-lasting or durable goods, such as cars and refrigerator, and for financial emergencies.

THE BANKING SYSTEM & FINANICAL SERVICES MORTGAGE COMPANIES These companies provide loans for people to purchase homes or other alternative types of real estate.

THE BANKING SYSTEM & FINANICAL SERVICES CHECK-CASHING OUTLET These financial institutions are for people who don’t have checking/savings accounts. They offer a wide variety of services such as: Mailing, Selling stamps, money orders, file taxes, and private postal boxes.

THE BANKING SYSTEM & FINANICAL SERVICES PAWNSHOPS These stores make loans off of personal merchandise. These items include but are not limited to: TV’s, Computers, Jewelry, Musician Equipment and Guns. These are very high interest loans and usually a last option for folks.

THE BANKING SYSTEM & FINANICAL SERVICES TYPES OF FINANCIAL SERVICES ***Accepting Deposits ***Transferring Funds ***Lending Money ***Storing Valuables ***Providing Financial Advice ***Managing Trusts

THE BANKING SYSTEM & FINANICAL SERVICES ACCEPTING DEPOSITS Safe storage of $$$ for use in the future is a universal need. One of the main services financial institutions offer is accepting money from their for their safekeeping.

THE BANKING SYSTEM & FINANICAL SERVICES TRANSFERRING FUNDS The ability to transfer funds from one account to another are a significant service that banks provide. The most common method of transfer is by someone writing a check. EFT or Electronic Funds Transfer is becoming more and more the wave of the future in $$ transactions. You can have your bank transfer things automatically from your bank account to pay utilities bills and make loan payments.

THE BANKING SYSTEM & FINANICAL SERVICES LENDING MONEY One of the ways that banks can increase loans (quantity) is by offering credit cards. Buying items such as clothing, sports equipment, jewelry many times are purchased by credit cards. This allows one to make a purchase without the long legality of a loan. However you do pay a higher interest rate for the conveneince of such a loan arrangement.

THE BANKING SYSTEM & FINANICAL SERVICES STORING VALUABLES Another type of service offered is a place to store valuables. This can be important paperwork, stocks, bonds, COD’s, jewelry and family mementos etc. These are usually kept in a high security well-guarded vault. This “safe deposit” box may only be opened by the person who initiated the contract or if you allowed someone to have access via your signature on a card.

THE BANKING SYSTEM & FINANICAL SERVICES FINANCIAL ADVICE Banks advice customers on a number of different financial items. Banks offer advice on investments. Some of these include: Saving accounts that earn interest, Government bond, Bonds issued by local governments and school districts etc.

THE BANKING SYSTEM & FINANICAL SERVICES MANAGING TRUSTS Trust companies are businesses that manage people’s money and property for them. These are usually put in place by people both “young & old” who come into money or gaining an inheritance. Elderly people who are ill or incapacitated use trust companies to manage their finances.

THE BANKING SYSTEM & FINANICAL SERVICES FEDERAL RESERVE SYSTEM The federal government set up the Federal Reserve System to supervise and regulate banks and financial institutions. The U.S. is divided into 12 Federal Reserve Districts. There is a Central Reserve Bank in each district.

THE BANKING SYSTEM & FINANICAL SERVICES FEDERAL RESERVE ACTIVITIES The federal reserve system serves its member banks much like your bank serves you. It accepts deposits, lends money, and provides them with other banking services. FRS sees to it that banks don’t lend out all the monies they receive from customers. They are only allowed to lend a certain percentage of the $$$ they take in. FRS sees to it that these rules are followed.