Banking Systems, 2e © Cengage/South-Western Slide 1 THE BUSINESS OF BANKING Introduction to Banking Role of Banks in the Economy How the Banking System Works Other Financial Institutions 1

Banking Systems, 2e © Cengage/South-Western Slide INTRODUCTION TO BANKING Define the business of banking. Identify trends in modern banking. GOALS

Banking Systems, 2e © Cengage Learning/South-Western Slide 3 Medium of exchange Financial intermediary Commercial bank Retail bank Central banks TERMS

Banking Systems, 2e © Cengage Learning/South-Western Slide 4 What is a Bank? A bank is a business Banks sell their services to earn money, and they market and manage those services in a competitive field In many ways, banks are like other businesses that must earn a profit to survive

Banking Systems, 2e © Cengage Learning/South-Western 4 Functions of a Bank Safeguarding funds Transferring funds Exchanging money Lending money Slide 5

Banking Systems, 2e © Cengage Learning/South-Western Money is a Medium of Exchange Medium of exchange An agreed upon system for measuring the value of goods and services Financial intermediary An institution, firm or individual who mediates between two or more parties in a financial context. Slide 6

Banking Systems, 2e © Cengage Learning/South-Western Making of Money Videos History of Money Video How money is made Slide 7

Banking Systems, 2e © Cengage Learning/South-Western Banks are Financial Intermediaries Slide 8 a bank can act as your agent for using or protecting that money, which makes it a financial intermediary for: the safeguarding Transferring Exchanging or lending of money.

Banking Systems, 2e © Cengage Learning/South-Western Closely Regulated Because banks and money are essential to maintaining not only economies but entire societies, they are closely regulated and must operate by strict principles and procedures In the United States, banks may be chartered by federal or state governments. Slide 9

Banking Systems, 2e © Cengage Learning/South-Western Bank Organization Banks are usually corporations and may be owned by groups of individuals, corporations, or both In the US, all federally chartered banks have been required to be corporations since 1863 Around the world banks are supervised by governments to guarantee the safety and stability of the money supply and of the country Slide 10

Banking Systems, 2e © Cengage Learning/South-Western Slide 11 Types of Banks Commercial Banks Retail Banks Central Banks

Banking Systems, 2e © Cengage Learning/South-Western Commercial Banks Generally what we think of as a bank Conduct about 60% of the deposit and loan business in the U.S. Provide familiar services Checking and savings accounts Credit cards Investment services Offer their services to both businesses & people Slide 12

Banking Systems, 2e © Cengage Learning/South-Western Retail Banks Institutions that help individuals not served by commercial banks Mutual savings banks Savings and loans Credit unions Help customers save money, acquire loans, and invest Slide 13

Banking Systems, 2e © Cengage Learning/South-Western Central Banks Government banks that manage, regulate, and protect the money supply & the banks themselves Issue currency Conduct monetary policy The Federal Reserve System performs the central banking function in the U.S. Slide 14

Banking Systems, 2e © Cengage Learning/South-Western The Federal Reserve Owned by the banks Board of Governors appointed by the President & Senate The President of U.S. selects the chair of the Federal Reserve Slide 15

Banking Systems, 2e © Cengage Learning/South-Western Slide 16 List four functions that define a bank.  checkpoint

Banking Systems, 2e © Cengage Learning/South-Western Banking Today 3 Factors that have changed the banking industry: 1.Mergers 2.Technology 3.Competition Slide 17

Banking Systems, 2e © Cengage Learning/South-Western Slide 18 MergersMergers Merger When one or more banks join or acquire another bank or banks Mergers increase the size of banks, giving them more resources Decreases the number of banks

Banking Systems, 2e © Cengage Learning/South-Western Bank Mergers Banks are larger & ownership is concentrated Fewer banks control more & more of the nation’s money About 25 large banks control 45% of U.S. assets The largest banks control about 75% of domestic assets Slide 19

Banking Systems, 2e © Cengage Learning/South-Western After a merger… Some consumers face higher fees Banks have less community involvement Banks offer less lending in local areas Slide 20

Banking Systems, 2e © Cengage Learning/South-Western Slide 21

Banking Systems, 2e © Cengage Learning/South-Western Banking is International Technology has allowed banking to become more international Instant communication & transfer of funds so geographic boundaries do not matter U.S. banks put together huge investment transactions overseas & engage in investment banking prohibited in the U.S. Slide 22

Banking Systems, 2e © Cengage Learning/South-Western Slide 23 TECHNOLOGYTECHNOLOGY Operations have been automated Accounting Auditing Examining functions Instantaneous transactions Funds transfer Record keeping Financial analyses

Banking Systems, 2e © Cengage Learning/South-Western Slide 24 CompetitionCompetition Competition is an ongoing challenge More services are available to consumers as banks compete to earn customers’ financial business Banks are more sales oriented with an emphasis on service, innovation, and marketing

Banking Systems, 2e © Cengage Learning/South-Western Slide 25  Book Work Pg. 9 #1-4 Turn in within 15 minutes Then we will go to the computer lab.

Banking Systems, 2e © Cengage Learning/South-Western Create Your Own Currency Slide 26