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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. The Federal Reserve System (The Fed)
System established by Congress in 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

9. 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

10. 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

11. 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