1. Chapter 13
Banking

2. Think about it… Why do we have banks? Are banks a business?
How do banks make money?

3. The Need for Financial Institutions
All deposit taking institutions invest and lend their customers’ savings and charge fees for services.
Canadian Banking
Banks are businesses that sell services to earn profits
Most bank revenue is from interest on loaned money and investments
Banks also invest money that individuals and businesses deposit with them, thereby earning interest.
These institutions accept deposits, encourage saving, and keep money safe.
They provide loans to consumers and to businesses, and they handle millions of business transactions.
Institutions provide different services, banking methods, and hours of operations.
CANADIAN BANKING
Banks loan money to consumers, businesses, and the government.
Banks also invest money that individuals and businesses deposit with them, thereby earning interest.

4. The Need for Financial Institutions
Financial Institutions - accept deposits, encourage saving, and keep money safe.
They provide loans to consumers and to businesses, and they handle millions of business transactions

5. The Bank Act
Canadian Constitution of 1867 created a common, unified banking system controlled by the federal government.
All need to follow the same rules
Canadian banks are known as chartered banks. Only chartered banks are allowed to call itself a “bank”.
The Bank Act
The Canadian Constitution of 1867 gave the federal government control over money and banking.
Federal parliament passed the first bank act in 1871.
Receiving a charter allows an institution to use the word “bank”.
The Bank Act outlines procedures for new banks and mergers and gives details about what a bank can and cannot do.
The Bank Act is reviewed and revised every few years.
The last revision occurred in 2001.
In 1980 the revisions allowed foreign banks to operated in Canada for the first time.
See Table 13.1, “The Three Classes of Canadian Banks”, on page 398.
See Table 13.2, “Canada’s 19 Schedule I Banks”, on page 399.

6. Three Classes of Bank Schedule I
Owned by Canadian Shareholders (Domestic) – BMO, CIBC, Scotiabank
Schedule II
Foreign-owned and operate similar to Schedule I Banks
Schedule III
Foreign-owned and have restrictions set by the Bank Act
The Bank Act
The Canadian Constitution of 1867 gave the federal government control over money and banking.
Federal parliament passed the first bank act in 1871.
Receiving a charter allows an institution to use the word “bank”.
The Bank Act outlines procedures for new banks and mergers and gives details about what a bank can and cannot do.
The Bank Act is reviewed and revised every few years.
The last revision occurred in 2001.
In 1980 the revisions allowed foreign banks to operated in Canada for the first time.
See Table 13.1, “The Three Classes of Canadian Banks”, on page 398.
See Table 13.2, “Canada’s 19 Schedule I Banks”, on page 399.

7. Branch Banking
head office in main cities and interconnected “branches” in different parts of the country.
Each schedule 1 bank has a head office in one of Canada’s major cities
Head offices determine policies and is connected to the branches across the country
Branch Banking
Schedule I banks have head office in one of Canada’s main cities.
Head offices determine policies and is connected to the branches across the country.
See Table 13.3, “Branch Banking in Canada”, on page 400.
The Bank of Canada
The Bank of Canada is operated by the federal government, it is Canada’s central bank; it controls the money supply.
The Bank of Canada can raise or lower the bank rate.
The bank rate is the minimum rate of interest charged by the Bank of Canada for loans made to the chartered banks; also called the prime lending rate.
If interest rates go up, fewer individuals and business borrow money thereby causing the money supply to contract.
If interest rates go down, individuals and businesses borrow money and it causes more money to enter the economy and thereby increasing the supply.
Money supply is the total amount of money in circulation in Canada, including cash and deposits and savings in financial institutions.

8. The Bank of Canada Not actually a bank
helps to keep the economy stable by regulating the money supply.
Controls bank rate – minimum interest banks can charge for loans (Also known as prime lending rate)
Branch Banking
Schedule I banks have head office in one of Canada’s main cities.
Head offices determine policies and is connected to the branches across the country.
See Table 13.3, “Branch Banking in Canada”, on page 400.
The Bank of Canada
The Bank of Canada is operated by the federal government, it is Canada’s central bank; it controls the money supply.
The Bank of Canada can raise or lower the bank rate.
The bank rate is the minimum rate of interest charged by the Bank of Canada for loans made to the chartered banks; also called the prime lending rate.
If interest rates go up, fewer individuals and business borrow money thereby causing the money supply to contract.
If interest rates go down, individuals and businesses borrow money and it causes more money to enter the economy and thereby increasing the supply.
Money supply is the total amount of money in circulation in Canada, including cash and deposits and savings in financial institutions.

9. The Bank of Canada
When the Bank of Canada changes the rate it signals to chartered banks that they should lower or raise interest rates to borrowers
If interest rate rise, fewer businesses and consumers will take out loans, causing money supply to contract
If interest rate lowers, more people can afford to borrow therefore causing money supply to increase

10. Other Financial Institutions
Trust companies – started as investors, now similar to banks
Caisses Populaires and Credit Unions –
co-operative ownership, members have something in common and pool resources
Insurance Companies – insure risk (life, health, property, etc.), works by sharing risk, everyone pays in only few are paid out

11. Trust Companies
In the late 1800’s consumer would trust these companies with their money. Trust companies would manage and invest money for their consumers
Trust companies are known as “near banks”
These companies also provide services such as assisting customers with purchasing real estate, maintain trust accounts charitable organizations

12. Trust Companies Cont’d
Federal or provincial government grants the company the right to operate
The bank Act does not regulate these companies.

13. Caisses Populaires and Credit Unions
These are organized and owned by groups of people who agree to pool and share their resources
Members share a common bond of association (Ex. Place of employment or cultural or ethic background)
They offer similar services to banks such as receive deposits, lend money, provide investment products (Ex. RRSP, GIC’s)

14. Caisses Populaires and Credit Unions
Unlike a bank, if you want to borrow money, a small committee of members determines how much you can borrow
Unlike a bank, you have to be a member to use the services. To become a member, a person must purchase at least one share in the institution
These institutions are non-for-profit, so they return any profits they make to their members in the form of dividends or rebates.

15. Insurance companies Financial institution that insure risks.
They normally focus on 2 areas: Life and health insurance – and – property and car insurance
You will probably see insurance for the first time when you buy a car
Many types of insurance includes house, car, life, accident, property, drug and health insurance

16. Insurance companies Businesses need insurance as well.
Popular type is fire insurance which protects against losing everything in a fire.
Also property or liability insurance protects against accidents with employees or customers

17. How does Insurance work?
Car insurance – Anyone with car insurance pays a premium.
You have thousands of people who drive and pay their premiums so when a few people get into an accident, it comes out of that pool of money insurance companies get from peoples premium
The insurance company actually makes most of their profits by investing money

18. TO DO
Complete the Comparing Bank Accounts Activity to find out the difference between different institutions