1. How Banks Operate Chapter 24 Section 3

2. Words to Know Checking Account: An account in which deposited money can be withdrawn at any time by writing a check Savings Account: An account in which customers receive interest based on how much money they have deposited Certificate of Deposit (CD): Timed deposit that states the amount of the deposit, maturity, and rate of being paid

3. Banking Services Banks are started by investors: Pool financial investments Money Property Certificates of deposits Provide banking services to community Some of this money goes to expenses: Rent Supplies Salaries Banks need depositors to survive

4. Accepting Deposits Attracting Customers: Checking accounts: Money doesn’t stay here for long: Pay expenses Savings accounts: Money usually stays in here for long periods of time Gain interest Longer in the bank more money you make

5. Attracting Deposits cont. CD’s: Loan to the bank for a specific time Bank pays interest during this time Time ends, customer can claim the money Penalties if money taken out before time ends Higher rates on CD’s than savings accounts

6. Making Loans A main activity of banks: Lending money to businesses and consumers Loans increase supply of money Money in circulation grows

7. Changes in the Banking Industry In the beginning (1800’s): State banks issued their own currency: Printed notes at printing shops People who needed loans borrowed notes and paid them back with interest Federal Govt. did not print currency until Civil War: Most of money supply was paper currency that was privately owned, state-bank issued

8. The National Banking Act 1863: Congress passes act Created dual banking system: Banks could have either state or federal charter Federal charter private banks: Issued national bank notes (national currency) Backed by govt.

9. The Federal Reserve Serves as the nation’s central bank: Power to regulate national banks Control the growth of money supply 1914-began issuing paper money: Called Federal Reserve Notes Became the major form of currency in circulation

10. The Great Depression 1930’s: Severely hurt banking industry Stocks and investments owned by banks lost much of their value Bankrupt businesses and individuals unable to pay off loans Thousands of banks collapsed President F.D. Roosevelt: Declared a “bank holiday”: Closed all banks Could re-open when proved to be financially sound Congress passed the Glass-Steagall Banking Act: Creation of FDIC

11. The Savings and Loans Crisis 1970’s: Most financial institutions were begging for relief from federal regulations: Because of the Great Depression Congress began deregulation: Relaxing restrictions on activities

12. The Savings and Loans Crisis cont. 1982: Congress decided to allow S&Ls to make high-risk loans and investments Investments went bad: Hundreds of S&Ls failed Insured by Federal Govt.: Govt. saddled with debt Cost tax payers approximately $200 billion FDIC took over regulation

13. Homework Chapter 24 Section 3 Worksheets