Financial Institutions Goals Explain the purpose of the Federal Reserve System List the types of financial institutions Discuss factors for selecting a financial institution 1 171 Key Terms ID: 618429
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Banks and Other Financial Institutions
GoalsExplain the purpose of the Federal Reserve System.List the types of financial institutions.Discuss factors for selecting a financial institution.
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17-1Slide2
Key TermsFederal Reserve System (Fed)commercial bank
credit unionFederal Deposit Insurance Corporation (FDIC)2Chapter 17Slide3
Focus on Real Life – pg. 422What do you know about banking and financial institutions?Slide4
The Banking SystemHave you ever thought of a bank as a business?
It is just like a store or factory.It sells services such as checking and payment accounts, savings accounts, loans, and investment.They are regulated more strictly than most other businesses.If a business fails, some people lose money.If a bank fails, thousands of people are affected.Slide5
The Federal Reserve System
The Federal Reserve System(FED) is the bank for banks.The federal government set up the Federal Reserve SystemSupervise and regulate member banks and to help banks serve the public efficientlyAll national banks are required to join the Federal Reserve and state banks may join.
Banks that join the system are known as member banks.U.S. is divided into 12 Federal Reserve districts. Pg. 423.
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Chapter 17Slide6
WTBS…Which Federal Reserve Regional Bank serves banks in our community?Slide7
Federal Reserve ActivitiesHolding of
reservesBanks cannot lend all of the money they receive from customers.Required to keep a part of the money deposited by customers on deposit with the Federal Reserve System.Fed hold these deposits in case the banks need additional funds to meet daily customer demand.Bank will lend only a certain percentage of deposited funds. The rest is reserved.For Example: If a customer deposits $1000 and the bank is required to hold 15% of all deposits. How much can the bank lend?$850.Slide8
Federal Reserve ActivitiesClearing checks for member banks.Clearing
refers to the paying of checks among different banks in different locations.The Fed processes millions of checks each day to make sure that the correct amounts are added to and subtracted from appropriate accounts.Slide9
Banking and the EconomyWays that individuals, businesses, and governments use banking services
Borrow money to build roadsBorrow money to buy seeds for cropsDeposit cash from business operationsFinance a college educationInvest for retirementObtain a mortgageProcess credit cared transactionsSave for a vacation.When you and other deposit money in a bank, you are helping to create jobs and economic growth that benefit your community and your society.Slide10
WTBS…How do you expect to use banks and other financial institutions to reach the goals you have set
?Slide11
TYPES OF FINANCIAL INSTITUTIONSCommercial Banks
Savings and Loan AssociationsMutual Savings BanksCredit UnionsLife Insurance CompaniesInvestment CompaniesConsumer Finance CompaniesMortgage CompaniesCheck Cashing OutletsPawnshopsDeposit Institutions
Non-Deposit InstitutionsSlide12
TYPES OF FINANCIAL INSTITUTIONS
Deposit institutions – Accepts deposits from people and businesses and use them to finance their businesses.Commercial banksSavings and loan associationsMutual savings banksCredit unions12
Chapter 17Slide13
Deposit Institutions
Chapter 1713Commercial banksMost common way for a bank to be organized.Often called full service banks b/c they offer a wide range of financial services.Checking accounts, provide savings accounts, make loans to individuals and to businesses.
Savings and loan associations
Traditionally, they specialized in savings accounts and making loans for home mortgages.
Today, they have become more like banks.Slide14
Deposit Institutions
Chapter 1714Mutual savings banksOwned by and operated for the benefit of, its depositors.Profits are distributed in proportion to the amount of business each participant does with the company.
It is organized mainly for savings and home loans.Located mainly in the northeastern U.S.
Credit unions
User-owned, not-for-profit
People in the same company, government agency, labor union, or profession often form credit unions.
Serve members only.
Accept deposits and make loans for a variety of purposes.
When people make deposits, they become members b/c deposits are partial ownership in the credit union.
National Credit Union Administration (NCUA), a federal agency regulates these financial institutions.Slide15
TYPES OF FINANCIAL INSTITUTIONS
Non-deposit financial institutions – Do not take or hold deposits. They earn their money selling specific services or policies.Life insurance companiesInvestment companiesConsumer finance companiesMortgage companiesCheck-cashing outletsPawnshops
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Non-deposit Financial InstitutionsLife insurance companies
Provides financial security for their dependents.Offer financial services such as investments.Investment companiesAre chosen for long-term growth of their money.Consumer finance companiesSpecializes in making loans for long-lasting or durable goods, such as cars and refrigerators, and for financial emergencies.
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Non-deposit Financial Institutions
Mortgage companiesProvide loans for buying a home or other real estate.Check-cashing outletsPeople who do not have bank accounts may use check-cashing outlets (CCO) to cash paychecks and to obtain other financial services.Such as: electronic tax filing, money orders, private postal boxes, utility bill payment, and the sale of bus and subway tokens.Some services provided at a CCO are more expensive than at other businesses.PawnshopsMake loans based on the value of some tangible object, such as jewelry or other valuable items.
Commonly charge higher fees than other financial institutions and should usually be avoided.
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Chapter 17Slide18
WTBS…How are non-deposit financial institutions different from deposit institutions
?Slide19
SELECTING A FINANCIAL INSTITUTION
4 Basics services offeredSavings accountsChecking and payment accountsLoans and other credit plansOther services, such as safe-deposit boxes19Chapter 17Slide20
SELECTING A FINANCIAL INSTITUTION
SafetyFederal Deposit Insurance Corporation (FDIC)It protects depositors’ money in case of the failure of a bank or financial institution that it regulates.Insures all accounts in the same name at each bank up to $100,000Almost 99% of all banks are FDIC members.ConvenienceClose to where you live or work, convenient ATM locations, Internet banking
Fees and chargesComparison shop for best fees on the services you needRestrictions
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