1. Innovations in Modern Banking
Chapter 10: Section 3

2. What Services do banks provide
1. customers can store money
2. customers can earn money
3. customers can borrow money

3. Customers can store money
Banks safe places to store money/valuables
Safe deposit boxes
1. Customers deposit money
2. bank stores currency in vaults
3. banks insured against theft and other loss
4. customer accounts insured in case bank fails

4. Customers can earn money
Customers deposit money earn interest on accounts
Other forms of accounts:
Money market
Certificate of Deposits (CDs)

5. Customers can borrow money
Banks allow borrowing of money Fractional Reserve Banking
Banks provides different loans for different circumstances
Mortgage Loan
property = collateral
Credit Card

6. Question
Explain the ways in which bank transactions are beneficial to customers and banks.
Customers:
safe place for money and valuables
Earn interest
Obtain needed loans
Banks:
Can earn money by making loans
Charging interest

7. Fractional Reserve banking

8. Prior to 1980s: government regulated banks
Banking Deregulation
Prior to 1980s: government regulated banks
Prevented banks from operating in more than 1 state
Also prevented number of branches for banks
Deregulation in 1980s and 1990s ended these restrictions major changes

9. Bank mergers Larger banks acquire smaller banks Benefits of Mergers
Bank of America and JP Morgan Chase and Co.  2 largest banks in the US
Assets around $1 trillion each
Benefits of Mergers
Increased competition
Interest rates low
More consumer services
More bank branches (number of banks declined)
Able to better technology

10. Bank mergers Problems: Fewer banks to choose from
Larger banks may show less interest in small customers and local community issues
Customers choose a bank that suits them
Large banks need to respond to consumer wants to lose customers

11. Banking services Financial Services Act 1999
Lifted restrictions from Banking Act of 1933 limited competition
Change allowed banks to sell stocks, bonds, and insurance
Customers can have all financial needs in one bank “financial supermarket”
People still tend to rely on insurance companies for insurance needs

12. Technology and banking
1. Automated Teller Machines (ATMs)
2. Debit Cards
3. Stored-Value Cards
4. Electronic Banking

13. Automated Teller machines
Oldest and most familiar developments in electronic banking
ATMs data terminals linked to a central computer which is linked to individual banks’ computers
Magnetic strip on debit card linked to account information
Check balance
Make deposits
Withdraw cash
Transfer money between accounts
Make loan payments

14. Debit Cards Also called check cards Look like credit cards
Makes immediate payments
Only allow you to spend the money that you actually have

15. Stored-value cards Prepaid cards
Examples:
transit fare cards,
gift cards from retail stores,
telephone cards
No need to worry about having exact change each time they ride a bus or use a pay phone

16. Electronic Banking
Can use banking services from home internet provider
Direct deposit
Transfer funds
Pay bills
Print statements
Information security and identity theft
Banks need a lot of personal information to set up electronic banking
Banks need to tell customers about privacy policies and offer customers opportunity to decide what information can be shared with others