1. Banking Leslie Lum

2. What Banks Do n Deposit functions - take in money from you and give you interest n Loan functions - use the money that you deposited and lend it out to others. Banks are required to keep 3 to 20% of deposits as a reserve requirement. Other funds can be loaned out.

3. Other Services n Credit cards n Manage your money (brokerage and funds) n Insurance n Bill payment n Financial planning

4. Banking Hasn’t Been Boring n 1970’s inflation pushed banks to lobby for deregulation of interest rates n 1980’s real estate frenzy resulted in over-building n 1980’s deregulation allowed banks into other financial services n 1980’s finance companies took commercial paper share away from banks n 1990’s banks are consolidating n 2000’s banks become very large and encounter problems with easy lending

5. Federal Reserve System n Network of 12 regional banks owned by the participating commercial banks within its region n Overall policy is established by seven member board of governors in Washington, D.C. (14 year terms)

6. Federal Reserve sets Discount Rate lower Banks lend to each other Banks lend businesses Banks lend individuals People spend Businesses grow

7. Interest Rate Food Chain

8. How do you assess credit risk? n Character –prompt in paying bills? bankruptcy? n Capacity –financial ability to pay n Capital –Net worth n Collateral –Assetsto back loan n Conditions –economic conditions-expansion or recession

9. Credit Rating Exercise n http://www.bankrate.com/brm/fico/calc.asp