1. Financial Institutions and Banking

2. Canada’s Financial Institutions
Chartered Banks
Trust Companies
Caisses Populaires
Credit Unions

3. Canadian Banking Banks are businesses
Banks sell services and earn profits on these services
Most of their revenue is earned by charging interest on money they loan to consumers, businesses, and the government.
They invest a portion of the money customers deposit into accounts and earn more interest than they pay their customers.
They also charge service fees depending on the type of account you have with them and services they perform for you

4. The Bank Act
Canadian Constitution of 1867 gave the federal government control over banking and money which means the federal government makes all laws and regulations concerning banking and money so all banks in Canada operate under similar rules
An individual province or city can not change the rules and allow banks in their area do something that the federal government doesn’t allow them to do.

5. The Bank Act Outlines procedures for: 1. opening new banks;
2. forming mergers with other banks;
3. other details on what they can and can not do
For example, banks must:
1. make regular reports to the federal minister of finance

6. The Bank Act
Every few years, the federal government reviews the Bank Act to ensure it continues to meet the needs of society and the business community

7. The Bank Act
The government introduced new pieces of legislation (bills) which go through the legislative process to become new laws that are added to the Bank Act.
Example:
1980 changes to the act allowed foreign banks to operate in Canada for the first time.

8. The Bank Act Established three classes of chartered banks:
1. Schedule I
2. Schedule II
3. Schedule III
The class to which a bank belongs is determined by its ownership

9. Three Classes of Canadian Banks
Schedule II Banks
Mostly foreign owned banks but are controlled by a small number of shareholders
They don’t generally offer shares to the public
Have the same powers as Schedule I banks, but the government limits the total number of branches they can have and the total amount of assets they can hold
Examples include the Amex Bank of Canada, the HSBC Bank of Canada, ING Bank of Canada
Most focus on investment banking and corporate customers
Schedule I Banks
Owned by Canadian shareholders
Shares are traded on the major Canadian stock exchanges
Investors buy shares in these banks in order to receive a share of the profits
Canada has 19 Schedule I banks.
Examples include CIBC, RBC, TD, BMO, Scotiabank, Canadian Tire Bank

10. Classes of Banks Schedule III Banks
Foreign bank branches with permission to operate in Canada
The Bank Act sets restrictions on these banks
Most offer investment banking and corporate services
Examples include Capital One Bank, Deutsche Bank A.G., and Citibank

11. Branch Banking
Each Schedule I bank has a head office on one of Canada’s cities
Head office is connected to thousands of bank branches across Canada.
Branches are also in more than
40 foreign countries.

12. Bank of Canada The Bank of Canada is NOT: A chartered bank
A bank where consumers can open up accounts or borrow money

13. Bank of Canada The Bank of Canada: is the government’s bank;
issues Canada’s paper money
helps keep the Canadian economy as stable as possible.

14. Bank of Canada
1. How does it try to keep the Canadian economy as stable as possible?
It regulates the money supply which is all the money in circulation in the country.
2. How does it regulate the money supply?
It raises or lowers the interest rate also referred to as the bank rate or prime lending rate.
What is the bank rate, also referred to as the prime lending rate?
It is the interest rate the Bank of Canada charges for loans it makes to the chartered banks (i.e. CIBC).
Chartered banks borrow very little and rarely from the Bank of Canada.

15. Impact of Interest Rates on the Economy
Raising or the lowering of the Bank of Canada’s prime lending rate indicates that chartered banks should follow suit
Bank of Canada announces its new bank interest rate several times a year and it is always in the news.

16. Impact of Interest Rates on the Economy
Raising Interest Rates
Makes it more expensive to borrow money from the bank.
Used to help keep inflation from increasing too much to quickly
Results in less money circulating in the economy and people cut back on their spending.
Fewer dollars being spent leads to a drop in demand for goods and services, thus helping to control inflation as the price of goods does not increase or at least as much as it might if people have more money to spend.
Lowering Interest Rates
Makes it less expensive and thus more attractive to borrow money from the bank
Results in more money circulating in the economy and encourages people to spend more money
More dollars being spent leads to an increase in demand for products and services which helps businesses make more money leading to more jobs for society who have money to spend. This cycle may then lead to price increases.

17. Trust Companies First established in the late 1800’s:
Their purpose was to manage and invest funds entrusted to them by customers
Today:
They provide many of the same services as banks such as providing chequing and savings accounts, and providing loans.
They assist customers with the purchase or sale of real estate (property)
They maintain trust accounts for charitable organizations an minors
Sometimes called “near banks.”

18. Who Governs Trust Companies
The Bank Act does not regulate trust companies.
Each province and the federal government specify which types of investments trust companies can make with their customer’s money.

19. Canada Deposit Insurance Company (CDIC)
The Canada Deposit Insurance Corporation (CDIC) is a federal Crown corporation created by Parliament in 1967 to protect your deposits made with member financial institutions in case of their failure.
CDIC is NOT a bank.
CDIC is NOT a private insurance company.
CDIC automatically insures many types of savings against the failure of a bank or financial institution that is a CDIC member. However, not all savings are insured and CDIC deposit insurance does not protect against fraud, theft or scam.

20. CDIC Products insured and not Insured by CDIC See link:

21. Caisses Populaires and Credit Unions
Organized and owned by a group of people who agree to pool and share their resources
Members share a common bond such as profession, place of employment, geographic area, cultural or ethnic backgound.
(i.e. Teachers Credit Union, Niagara Credit Union)

22. Credit Union and Caisses Populaires Services
Receive Deposits
Lend money
Offer chequing services
Provide investment products like RRSP’s and GIC’s.
Offer competitive interest rates on deposits and loans
Focus on residential mortgages, consumer credit and deposits.
If you want to borrow money from a credit union or caisses populaire, you must have a savings account with them

23. Credit Union and Caisses Populaires Characteristics
Provide services only to members and their families
To become a member, you must purchase at least one share of the company
Each member has one vote regardless of how many shares you own, when making collective decisions for the institution
Not-for-profit organization, thus all profits earned must be returned to their members in the form of dividends or rebates at the end of the year.
Depositor’s accounts are protected/insured through provincial legislation.

24. Insurance Companies What are Insurance Companies?
Financial institutions that insure risks
Provide money to cover the financial costs should some kind of accident, theft, or other loss happen associated with what is being insured
What types of insurance are there?
Life and accident
Car and home
Drug and health
Factors influencing an individual’s insurance needs:
Age, marital status, children, home, car and other personal items, risk comfort level

25. Why Do Business’s Need Insurance?
Fire insurance
To protect a business from losing everything in a fire
Property or liability insurance
Protects against an accident with an employee or customer
Auto Insurance
Allows companies to transport goods without concern for being sued for an auto accident

26. Why Do Business’s Need Insurance?
Professional Insurance
Protects physicians, dentists, and lawyers from being sued for professional misconduct or malpractice
Product Liability Insurance
Protects against a lawsuit from a product being faulty and/or injuring a customer

27. How Insurance Works Customers are call policyholders.
The type of insurance one receives and the extent of the coverage is called the policy.
Customers pay a determined amount of money called a premium. ($120)
Premiums are usually paid to the insurance company on monthly basis.

28. How Insurance Works
Premiums are determined based on a number of factors including, but not excluded to:
1. type of insurance
2. age
3. financial and scope of coverage wanted
4. previous insurance record and claims
5. risk level to the insurance company

29. How Insurance Works
An insurance company has many policyholders each contributing premiums
The insurance company using the premiums of the many to pay out the claims of a few.
A major disaster can quickly cause an insurance company to run out of funds to cover claims
911 caused a number of insurance companies to go bankrupt as they were unable to meet all the claims from business and individual loses.
Insurance companies make most of their money from taking premiums and investing.

30. Bank Accounts
Bank accounts where you deposit money until you need it are often referred to as deposit accounts.
Financial institutions offer different types of deposit accounts depending on one’s needs.
i.e. Savings account, chequing account, joint account
Interest rates vary from account to account and from one bank to another

31. Opening and Accessing an Account
Step 1
Provide personal information required
Step 2
Provide 2 pieces of identification
Step 3
Fill out a signature card
Step 4
Receive a bank card

32. Opening and Accessing an Account
Step 2
Identification:
Student card
Drivers license
Passport
Credit card
Health card
Step 1
Personal information required:
Full name;
Home address
Date of birth
Telephone number
Occupation, if applicable

33. Opening and Accessing an Account
Step 3
Signature Card:
Provides a sample of the signature you will use when you deposit and withdraw money, write cheques, and engage in other financial transactions.
You will need to fill out a signature card

34. Opening and Accessing an Account
Step 4
Receive bank card that can be used to conduct financial transactions such as at an Automated Banking Machine (ABM)
Can be used as a debit card to make purchases at a store and your bank account will automatically be deducted by the amount of the purchase.

35. Account Statements and Passbooks
When you open an account, your account will be assigned an account number for easy reference of your keeping tack of your account activity
Depending on the financial institution you may receive a monthly, quarterly, or annual bank statement reviewing all of your account activity.
Activity would include deposits, withdraws, service charges, interest received, cheques cashed, etc.

36. Account Statements and Passbooks
Passbooks which you update at the bank or at an ABM, provide you with a record of all your financial activity
Passbooks are seldom used now, as customers can use online and phone banking to keep up with their account activity.

37. Making a Deposit or Withdrawl
Using the ABM:
Use your bank card
Input your personal identification number (PIN) – like an electronic signature
Follow the onscreen instructions
Take a copy of the receipt printed out
Enter PIN

38. Making a Deposit or Withdrawl
At the bank:
Fill out a deposit slip
Teller inputs information electronically
You will either give or receive money from the teller
The teller will give you a receipt

39. Types of Common Bank Accounts
Transaction accounts
Savings account
Transaction/Savings account
Current Accounts
5. Joint Account

40. Transaction Accounts Formerly called chequing accounts
Transaction account is used to pay bills and for purchasing goods and services with cash, cheques, or debit cards
May use an ABM, online banking or telephone banking
You should receive a receipt of some sort which has recorded the details of the transaction.
Transactions records ensure you know how much money is in your account.
Most financial institutions do not pay interest on this type of account
Some institutions charge service fees depending on the number of transactions per month and the balance in your account

41. Savings Account Used by people who want to save some money
Banks will pay interest on the balance of your account
The interest paid is the lowest interest rate available compared to all other types of investments.
The amount of interest and how it is calculated varies from bank to bank.
Some banks require the customer to have a minimum balance at the end of each month – i.e. $

42. Transaction/Savings Account
Allows you to pay bills but also to save money.
A small amount of interest may be paid, but less than what a savings account would pay
Service charges may apply to processed cheques, debit and withdrawls
You may be exempt from some or all the service fees if you maintain a minimum balance in your account at the end of each month. (i.e. $3000)

43. Joint Account
An account (transaction, savings, or the combination) can be opened in the name of two or more people
Withdrawls from joint accounts may require one or more signatures, depending on the wishes of the people who opened the account.

44. Current Accounts Current Accounts Used by businesses
Business must be registered with the provincial or federal government
Account must be in the business name
No interest is paid on these accounts
Bank charges a service fee for each deposit, withdrawl and cheque that is procesed
Cancelled cheques (cashed cheques) are returned to the business for their accounting records at the end of each month along with a bank statement outlining the account activity for the month.
Business usually have a deposit book with duplicate deposit slips for the clients accounting records.

45. Cancelled Cheques
A cheque a business or your wrote out for someone, who then cashed the cheque at the bank.
The business or individual’s financial institution will stamp the cheque with the date the money was taken from the account.
The institution will either return the cancelled cheques to the issuer with a monthly statement or provide photocopies of the cancelled cheques, or store them for future reference.
Cancelled cheque is legal proof of payment and can be used to prove a payment was made.

46. Writing Cheques Date Amount in Numbers Payee
Drawee – The name of the financial institution would also be present on the cheque
Date
Amount in Numbers
Payee
Amount in words
Drawer

47. Cheque Essentials Date:
The date, month and year the cheque can be cashed must be present.
Staledated Cheques:
Most financial institutions will not cash a cheque when the date is six months after the date on the cheque.
Postdated Cheques:
When someone writes a date on the cheque which is later than the actual date.
A financial institution will not cash a cheque until the date that is actually on the cheque or after up to six months.

48. Cheque Essentials Payee
The name of the person or business to whom the cheque is written – Pay to the order of Bart Simpson.
Be sure to spell the name of the payee correctly, or s/he may experience difficulty cashing it.

49. Cheque Essentials Drawee
This is the name of your financial institution (i.e. CIBC)
Drawer
The person from whose account the money will be taken
Must sign the cheque on the line on the bottom right corner of the cheque.
The signature should be the same as the one on the drawer’s bank signature card.

50. Cheque Essentials Stopping Payment
If a cheque you have written gets lost or stolen, you can notify your financial institution and tell them you would like a stop payment on a cheque.
A form will then need to filled out with the details of the cheque you would like the stop payment on.
The financial institution will charge you a fee for this service.

51. Cheque Essentials Holds on Cheques
The bank may delay when you can collect the money from a cheque you are cashing.
Holds are done until the bank can ensure that the person who issued you the cheque actually has enough money in the bank to cash it.
Any interest you may have earned while the money was withheld from you will be added to your bank account.
Holds are often placed on cheques above a certain value.

52. Cheque Essentials NSF Cheque (Non-sufficient funds)
When a cheque is cashed and the financial institution learns that theperson who wrote the cheque does not have adequate funds in his/her bank account to cover the amount.
The person who cashed and wrote the cheque will be charged a service fee for NSF cheques.