1. Competency 4.02 Understand the Banking System
4.0 Understand the Role of Finance in Business
Competency 4.02 Understand the Banking System
Objective 4.02-A
Analyze the roles/responsibilities of the Federal Reserve.

2. Topics Classification of financial institutions
Depository
Non-depository
Common payment services
Electronic Funds Transfers
Online Bill Pay
Checking Accounts
Specialty checks
Money Orders 2

3. Classification of Financial Institutions
Depository
Earns money to finance their business by accepting deposits from customers
Types include:
Commercial banks- full service - offer many different services, including savings, loans, and checking accounts.
Savings and Loan associations (S&Ls) -traditionally specialize in savings and home loans, but now are very similar to commercial banks.
Mutual savings banks- owned by the depositors and specialize in savings and home loans.
Credit unions- not-for profit, serve their members only, and are owned by their depositors. 3

4. Classification of Financial Institutions
Non-depository
Earns money to finance their business by selling specific services such as policies, investments, and loans
Types include:
Life insurance companies -term, whole, universal
Investment companies - stocks, bonds, mutual funds
Consumer finance companies – higher rates if bad credit
Mortgage companies – loan $ for land, buildings, homes
Check-cashing outlets –fee based if do not have bank acct
Pawnshops –loan $ based on value of item pawned 4

5. How To Compare Financial Institutions
Which characteristics of financial institutions are of interest?
Services offered
Safety
Convenience
Fees and charges
Restrictions
What kinds of questions may be asked about each characteristic? 5

6. Comparative Questions
Services – Does the institution offer needed services?
Savings
Depository for payroll taxes
Checking
Various options to meet customer needs
Loans
Short term - working capital
Long term - mortgage
Credit cards
Debit cards
Safe deposit boxes
Trust management

7. Comparative Questions
Safety – Is the institution insured against losses?
Federal Deposit Insurance Corporation (FDIC) Created by Congress to maintain stability and public confidence in the nation’s financial system: insures deposits, supervises financial institutions
National Credit Union Administration
(NCUA) Charters and supervises credit unions

8. Comparative Questions
Convenience – Does the institution offer the access desired?
Physical locations available
Online services
Easy to access & use
ATM machines

9. Comparative Questions
Restrictions – Are there minimum balances that must be kept, or other restrictions?
Minimum balance- $ amount required to stay in account at all times
If account keeps minimum balance, fees are often waived (eliminated)

10. Comparative Questions
Fees and Charges – What are the short and long-term costs of the services?
Flat monthly fees
Fees per transaction
NSF (Non-sufficient funds) fees
Checks written
Debit transactions
# of transactions allowed before fees begin
Minimum balance required to eliminate fees

11. Common Payment Services
Electronic Funds Transfers
Online Bill Pay
Checking Accounts
Personal, business
Specialty checks
Certified, Cashier’s, Traveler’s
Money Orders
Postal, Express, Telegraphic

12. Online Bill Pay Use the web to make payments Often fee based
Privacy can be issue
Change PIN frequently
Use only “safe” sites
Write Online Bill Pay questions 1-3 from next slide on notebook paper. Use the website to answer the questions.

13. Online Bill Pay Questions
What are the two types of online bill pay?
What is automatic bill pay?
Choose link Banking 101
Choose link 3 reasons to avoid online banking.
List 3 reasons given.

14. Common Payment Services - EFT
Electronic Funds Transfer (EFT)
Banking method in which computers and electronic
technology is used as a substitute for checks and other
paper forms of banking
Electronic Funds Transfer Options:
Automated Teller Machines (ATM’S)
Pay-By-Phone Systems
Direct Deposit or Withdrawals
Paychecks, automated bill payment
Point-of-Sale Transfers
Debit Cards
Automatic Deposits and Payments 14

15. Checking Accounts
Used by business and individuals to manage cash transactions
Check-
A preprinted form issued by the financial institution
Account holder directs withdrawals by writing checks
Parties to a Check
Payee, Drawee, Drawer

16. Last item completed on check!
Parties to a Check
Check
Number
Drawer’s Name & Address
Joint Account
ABA #
Payee
Check
Date
Melanie Paige
Charles Paige
619 Main Street
Raleigh, NC /1034
July 16, 2010
Pay To the Order of _____Donnie Tatum______________________$100.50
_One hundred and 50/ DOLLARS
State Credit Union
For _______________ Charles Paige
2131/1034:
Drawer’s Signature -
Last item completed on check!
Bank Name - Drawee 16
Memo
MICR Banking #s

17. Record Keeping IMPORTANT:
Keep a current balance in check register or on check stub by:
Recording deposits
Recording withdrawals
Checks written
EFTs
Bank Fees

18. Common Payment Services
Special Checks
Travelers check
Requires 1st signature when check issued
Requires 2nd signature when check used
Go to link below and read about traveler’s checks and how they work.

19. Traveler’s Checks Go to website
Traveler’s Checks – Draft drawn by a well-known financial institution on itself or its agent, used when traveling
Go to website
Write questions 1-3 on notebook paper. Use the website to answer the questions.
Click on Learn More about Travelers Checks.
List the 4 steps in how to use travelers checks.
List 5 ways Travelers Checks mean Peace of Mind.
What is the benefit of Cheques for Two?

20. Certified Check
A certified check is written by a bank for you from your bank account to give to someone.
It's guaranteed funds that the bank reserves from your account.
Go to website:
Write Certified Check questions 1-5 from next slide on notebook paper. Use the website to answer the questions.

21. Certified Check Questions
Who issues a certified check?
Give two examples of when you might need a certified check?
Why can’t a certified check bounce?
Why does a creditor require a certified check?
Do banks charge a fee for a certified check?

22. Cashier’s Check Sample Cashier’s Check – A check the bank draws on itself

23. Common Payment Services
Money Order
Draft issued by a post office, bank, express company, or telegraph company for use in paying or transferring funds for the purchaser
Orders issuing agency to pay amount printed on form to another party
Types of Money Orders:
Postal money order
Express money order
Telegraphic money order
Go to website
Write questions 1-5 from next
slide on notebook paper. Use
the website to answer the
questions.

24. Money Order Questions
For what amount of money is a money order issued?
When was the Postal Order system established?
What is a concern about using money orders?
Who usually sells money orders in the United States?
Name 5 security features of a postal money order.

25. Common payment services
Opening a checking account
Signing a signature card is the first step
Writing a check for payment
Endorsing a check for deposit
An endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else.
Different types of endorsements:
Blank
Full
Restrictive 25

26. Check Endorsements Definition: Signature on the back of a check
What does an endorsement do?
Allows payee to cash, deposit or transfer payment of the check to someone else
Provides proof that the payee cashed or transferred payment of the check to someone else
How should a check be endorsed?
Endorser (payee who is signing) should sign the check the way it is on the front of the check and if the name is misspelled, correct the signature directly up under the first endorsement 26 26

27. DO NOT WRITE BELOW THIS LINE
Blank Endorsements
Should match payee’s name
Signed with endorser’s name only (endorser is payee from front of check)
Can be cashed by anyone who holds the check with a blank endorsement!
Don’t use blank endorsement before you are ready to cash or deposit!
X Jane Doe
DO NOT WRITE BELOW THIS LINE 27

28. Special Endorsement Juan Delgado
Transfers payment of a check to someone else.
Payee signs check , then writes “pay to the order of” another person
Can be used to make payment on a debt
Juan is payee on check
Juan owes Maria money
Juan transfers payment to Maria.
Debt = money owed
Might also endorse:
Juan Delgado
pay over to
Maria Fernandez 28

29. Full Endorsement Example
Transfers payment to someone else
Payee signs the check over to another person to receive payment
Who was payee on check? John
X Pay to the order of
Jane Doe
John Doe
DO NOT WRITE BELOW THIS LINE 29

30. Restrictive Endorsement
Limits use of the check so it can be deposited only to endorser’s account.
Safest type of endorsement
Cannot be cashed by a thief or someone who finds the check
Best to use when mailing a check for deposit or when using the ATM for deposit. 30

31. Check Writing Procedures
Write information in the check register first, (ensure checks are written in numerical order)
Write the date the check is written.
Write the payee’s name.
Write in the numerical amount of the check.
Write in the amount of the check in words.
Write in the purpose of the check.
Sign the check. 31

32. How Do I Know the Amount in my Checking Account?
Keep a Check Register or Check Stub Balance
Subtract checks written (or debit card transactions) from balance
Add deposits to balance
Keep a running balance after writing checks or making deposits
Check Register is YOUR documentation of how much money is in your account?
What if mistakes are made?
You will make corrections when you reconcile (balance) bank statement

33. Bank Reconciliation What is a bank reconciliation?
Document that shows two equal balances
Your record of your checking account
The bank’s record of your account
Do they have the same $ balance?
Yes, or reconciliation is not complete!
Reconciliation helps to find/correct any mistakes in your register! 33

34. Outstanding Checks What is an outstanding check?
Outstanding checks are checks that have not cleared (been deducted from) the bank statement balance.
Need to know items outstanding in order to reconcile statement
How to know if checks are outstanding:
Find out which checks /deposits are outstanding by comparing the bank statement with the checkbook register

35. Reconciling a Checkbook
Makes sure the bank’s records agree with your records
1. Check for outstanding checks and deposits
2. Check the checks, deposits, ATM activity on the bank statement to make sure that your records are correct
3. Make adjustments to the bank statement and your records to ensure that you and the bank have the same amount of money
4. Reconcile every statement upon receipt 35

36. Steps in a Bank Reconciliation
Obtain the monthly bank statement.
Determine checks paid.
Find differences between the monthly bank statement and monthly check register.
Calculate the adjusted balance.
If the balances do not agree, check the steps again and recalculate.
Account balances must be equal! 36