Banks & Other Financial Institutions Ch PoB 2011

 Federal Reserve System (FED) – set up by federal government to supervise and regulate member banks and to help banks serve the public efficiently  An individual cannot open an account in a Federal Reserve Bank because it is the bank for banks  All national banks are required to join the Fed  State banks can join too  Member Banks – banks that join the system  United States is divided into 12 Federal Reserve districts; with a central bank in each The Federal Reserve System & Activities

Federal Reserve Districts

 Reserves –the amount of money deposited by customers that banks are required to keep that are held by the Fed  Result = banks will lend only a certain percentage of deposited funds  Clearing – refers to the process of paying checks and other payments among different banks Federal Reserve Activities

 How we use banking service:  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  Save for a vacation Banking and the Economy

Types of Financial Institutions

 Deposit Institutions (depository intermediaries) – accept deposits from people and business and use them to finance their business  Commercial Banks (full-service banks) – offer a wide range of financial services  Offer checking accounts, provide savings accounts, and make loans  Savings and Loan Associations – specializes in savings accounts and making loans for home mortgages  Mutual Savings Bank – is a savings bank that is owned by, and operated for the benefit of the depositors  Credit Unions – a user-owned, not-for-profit, cooperative financial institution  Regulated by the National Credit Union Administration (NCUA) Deposition Institutions

 Non-Deposit Institutions (non-depository intermediaries) – they do not take or hold deposits  Life Insurance Companies – offers life insurance and investments  Investment Companies – offer investment opportunities for long-term growth of their money  Consumer Finance Companies – specializes in making loans for long-lasting or durable goods  Mortgage Companies – provide loans for buying a home or other real estate  Check-Cashing Outlets – besides check cashing offer a wide range of services such as electronic tax filing, money orders, postal boxes, and utility payments  Pawnshops – make loans based on the value of some tangible object  Charge higher fees and should be avoided Non-Deposit Financial Institutions

 Services Offered 1.Savings accounts 2.Checking and payment accounts 3.Loans and other credit plans 4.Other services, such as safe-deposit boxes and investment advice  Safety  Federal Deposit Insurance Corporation (FDIC) – the federal agency that helps to regulate banks and other financial institutions  Insures all accounts in the same name at each bank up to an amount of $250,000  99% of all banks are FDIC insured Selecting a Financial Institution

 Convenience  More convenience may mean higher costs for banks, but online banking has resulted in lower costs for customers  Fees and Charges  ATM fees  Checking and usage fees  Overdraft fees  Can add up to hundreds in a short amount of time  Restrictions  Losing out on interest in a checking account  Locked in deposits  Balance limits Selecting a Financial Institution

1.What is the main purpose of the Federal Reserve System? 2.What are some examples of non-deposit financial institutions? 3.What factors should be considered when selecting a financial institution? Review